Trust Bank

An institution that helps people manage their trust and enables customers to put assets into a trust which the trustee then administers.

Author: Himanshu Singh
Himanshu Singh
Himanshu Singh
Investment Banking | Private Equity

Prior to joining UBS as an Investment Banker, Himanshu worked as an Investment Associate for Exin Capital Partners Limited, participating in all aspects of the investment process, including identifying new investment opportunities, detailed due diligence, financial modeling & LBO valuation and presenting investment recommendations internally.

Himanshu holds an MBA in Finance from the Indian Institute of Management and a Bachelor of Engineering from Netaji Subhas Institute of Technology.

Reviewed By: Hassan Saab
Hassan Saab
Hassan Saab
Investment Banking | Corporate Finance

Prior to becoming a Founder for Curiocity, Hassan worked for Houlihan Lokey as an Investment Banking Analyst focusing on sellside and buyside M&A, restructurings, financings and strategic advisory engagements across industry groups.

Hassan holds a BS from the University of Pennsylvania in Economics.

Last Updated:October 13, 2023

What Is A Trust Bank?

trust bank is an institution that helps people manage their trust. It enables customers to put assets into a faith that the trustee administers.

It is similar to a regular bank; however, this particular financial institution specifically handles trusts.

It serves as a corporate trustee that offers trustee services and can be tied or not tied to a bank. On the other hand, banks manage various financial transactions, such as deposits and loans.

A trust bank performs all sorts of duties to ensure that a person’s will or trust will be distributed according to the legal terms and the process in which it is done. They handle all sorts of assets, including liquid and non-liquid.

Departments within the bank work with their clients to handle matters regarding security and legal regulations, and they also act as fiduciaries on behalf of the client.

Key Takeaways

  • Trust banks are financial institutions dedicated to managing trusts, ensuring legal compliance, and overseeing asset distribution according to the grantor's wishes.
  • Trust banks have specialized departments for administration and investment management, responsible for tasks like serving as trustees, distributing assets, managing investments, and upholding legal standards.
  • Transferring assets into a trust requires meticulous paperwork and adherence to legal regulations. Trust banks assist in managing these documents, ensuring smooth administrative processes for trust accounts.

Understanding Trust Banks

A trust bank is a financial organization that acts as a fiduciary, agent, or trustee that authorizes the bank’s clients to execute transactions.

A trust is a contract that enables a person or institution to hold and manage title assets legally. Trust companies perform the corporate trustee role that can either be connected to a bank or not have a direct relationship with the bank.

Although there is a circulating stigma that trusts are only for the wealthy and powerful, it is not entirely true. They are helpful tools for anyone who owns money or assets they wish to pass down securely with proper care and security.

Trust funds are legal deeds that permit individuals to place their assets into special accounts to benefit another person or organization.

They are a long-term strategy for ensuring that your money is passed on to your children or other loved ones. Trust banks help influence family financial behavior by providing basic fund management rules.

These banks work specifically to meet their client's objectives and support those clients' efforts through assistance with investments.

They differ from regular banks because traditional banks work mainly with deposits, loans, and other securities that aren’t tied up with investments.

Inheritance funds can be complex and challenging to set up, which is why they often require the assistance of an attorney. However, today, plenty of online tools can help you do the process yourself.

Some examples of trust bank companies include CoAmerica, JP Morgan Trust Company, Northern Trust, Bessemer Trust, and U.S. Trust.

If you wish to make a will for distributing any assets, you would need to open a trust account that will provide tight rules for how those assets are distributed.

For example, if you want to give away your real estate to future generations, the trust would outline who will get what and under what conditions.

What is a Trust?

A trust is a legal agreement that dictates the rules regarding how the trust will operate for all the parties involved.

An individual's assets are combined into a trust, which has extensive control over how the money is used. They can be created under your will and composed while alive.

Depending on the types of assets and mandates of the account, trusts can range from being simple as riding a bike, or as complex as explaining the stock market to a middle schooler.

Inheritance funds can help confirm that your assets are dispersed and regulated according to your wish. They are also beneficial for helping to build significant wealth, regardless of how small or large you start.

Types of Trusts

There are multiple categories of trusts, depending on what you wish to give to the bank for future holding. Some examples include:

  • Revocable living trusts
  • Irrevocable trusts
  • Charitable trusts 

revocable living trust would allow you to control what happens to your assets during your lifetime. In contrast, depending on state requirements, an irrevocable trust usually cannot be changed after it is established.

In some ways, a revocable living trust is like a will since they both reflect a person’s wish for asset distribution and what should be included in the taxable estate.

Some reasons for considering a revocable trust may be that you own specialty assets, hold assets in multiple states, or have health concerns.

An irrevocable trust is different since the asset distribution conditions usually cannot be changed, hence the word “irrevocable.”

Irrevocable trusts can be created for various reasons, such as giving more financial security to your family or loved ones and, in some instances, gaining additional tax benefits.

Some examples of irrevocable trusts include:

  • Marital deduction
  • Credit shelter
  • Dynasty
  • Qualified terminable interest property (QTIPs)
  • Domestic asset protection (DAPTs)
  • Qualified personal residence (QPRTs).

charitable trust is irrevocable; however, this specific trust guarantees that any asset stated in it is distributed to a charity or other type of charitable organization. Two main types are charitable lead trusts and charitable remainder trusts.

With a charitable lead trust, you must allocate an income stream to a qualified charity for the required time. At the expiry of the specified period, any remaining funds would be distributed to selected individuals.

With a charitable remainder trust, you would allocate an income stream to a beneficiary. After the death of the final income beneficiary, the remainder of those assets would be distributed to qualified charities.

Trust Bank Departments

Trust banks help individuals or entities manage their monetary or non-liquid assets and ensure that they are distributed in a precise legal, and organized manner that complies with the intentions of the guarantor.

Financial institutions dealing with trusts and trust accounts have different departments that pertain to different types of trusts and intentions of what to do with those funds.

Departments within trust companies are designed to work with all types of people who wish to instill those trusts.

To do so, they must fulfill many roles relating to the creation, maintenance, and issuance of those trusts.

For instance, suppose your grandpa purchased a block of Apple stock and decided to hold it in a trust until a future date. The bank trustee can guarantee that the stock share is still paying dividends while prohibiting outside grantees from borrowing or selling against that share.

Departments within these banks also assist in finding the present or future values of assets and how to distribute them over time in the best logical manner. 

Note

Trust administration and investment management are the two main sectors of service for directing the trusts in a person’s account. 

Trust Administration Services

Trust administration involves transferring funds and other trust assets in a certain sense that complies with the trust terms.

The grantor dictates the contract's details which can vary depending on the case or circumstance.

Administrators take on multiple functions when it comes to managing funds. This includes mainly financial and legal duties.

For most trusts, the critical roles of the bank administrator are to collect any dividends, make sure they distribute assets to the correct beneficiaries, and file tax returns.

Some of the functions of this department of the financial institution are to:

1. Serve as a trustee

A common administration service performed by a trust bank serves as either a sole trustee or a co-trustee along with another trusted individual, such as a family member or friend.

This means that the bank assists with composing wise trust decisions and actions that can be taken to comply with the trust mandates regarding asset management.

This critical role often requires a fee, a set dollar amount, or a percentage of the trust. It is usually multiple thousands of dollars per year.

2. Distribute assets

Administration departments also handle the distribution of trust assets, such as checks and any property per the terms of the trust.

The distribution process is in place to ensure that all beneficiaries receive the assets promised to them by the guarantor in the manner they want.

When a guarantor creates a trust, they allocate their cash in any manner they choose without any limitations to how it’s spent.

However, most of the time, they are still mandated on how they spend money.

This could include transferring cash, paying household bills, cashing a student tuition check, purchasing a house, or any other legal transaction.

3. Assume legal duties

Administrators within these institutions are also responsible for handling securities custody and reporting information.

This setup ensures protection over the funding accounts, and no money is lost for the guarantor and beneficiary.

It entails that third-party brokers would have to deliver financial collateral such as stock certificates, title deeds, bonds, and other assets to the bank to keep them safe in a vault. When performing the role of a trustee, banks are eligible to file federal and state taxes on the authority of the trust.

Additionally, they can extend their insurance to confirm that the trust securities have coverage in the event of a loss.

Investment Management Services

Investment management services within a trust institution include performing the duties of investing and divesting trust assets that adhere to the trust requirements.

When carrying out the function of managing investments, most trust bank department divisions will follow the traditional classes of assets, which are usually stocks, bonds, cash, private businesses, and real estate.

For example, say you put $300,000 in a trust for your grandchildren to grow that wealth slowly over time.

The investment agent may compose a diverse group of financial holdings that include assets like blue chip stocks, treasury bills, real estate investments, and gift-edged bonds.

Bank services dealing with investment categories perform similar but slightly different roles than those handling administration services.

Some of these roles include:

1. Handling specialty assets

Specialty assets, also known as nonfinancial assets, include those assets that have a high potential for rewards.

On the other hand, they can pose oversight and administration challenges that require expertise and careful guidance.

When managing specialty assets, bank agents work to preserve the long-term value of these nonfinancial assets in your trust or estate.

Some examples of assets in this category include real estate, equipment, machinery, oil, or other mineral interests.

For instance, in Texas, it is typical that trust includes cattle or oil rights. This helps ensure that those assets are protected for the beneficiary to earn the highest return they can achieve.

2. Upholding standards of care

When it comes to ensuring security over trusts, investment management departments tend to be more conservative than those of a standard brokerage account since the advisers act as fiduciaries.

This means that the person or institution of this department is responsible for acting on behalf of another person and putting the clients’ interests over their own.

To ensure the utmost security over a client’s funds, the investment management agent must treat those funds as if they were their own.

Creating a Trust

The main reason for fabricating a trust is to have control over who receives your securities and how it’s done.

Creating any sort of will, revocable or irrevocable trust, begins with examining your goals and intentions, especially since it is a beneficial financial instrument for your overall wealth plan.

Note

Before jumping into the process, it is essential to consult your attorney and wealth advisor to decide your objectives so that they can make sure that the necessary regulations are set up in your plan.

You should consider hiring a trust bank company. Before doing this, you must consider the following questions regarding your plan.

Will you choose your trustee, or will you need to hire one from the bank? Is your motive to invest your assets or to simply keep them guarded? Will you need assistance with composing the rules? Are your assets standard or of niche type?

Many companies handle trust securities, and it is also necessary to figure out which bank would be most suitable for you and your financial plan.

Before deciding which bank to work with, you should consider if that bank is innovative and if the services are easy to use.

Before creating any type of trust, you must first set up a trust account. The process for setting it up depends on several things, including the kind of trust you wish to place your assets in and the beneficiary or beneficiaries that will receive those assets.

Trust Bank Account

To set up an account, you must choose how your trust’s assets will be managed and distributed.

Then, you must appoint a trustee or group of trustees, such as your attorney or family members, to verify the motive of the trust and govern and allocate the funds according to your goals.

It is essential that you also determine how you want your funds distributed.
This could be a lump sum on a specific date or in specific quantities paid at regular intervals, which could be yearly, monthly, or biannual.

After you consult your agent or attorney and choose which bank to use, transferring your assets into an account is the next step.

To do so, you need to choose the amount of money you want to put into your account. Trust funds can be categorized into a range of assets, such as cash, stocks, bonds, real estate, cars, artwork, family items, collectibles, etc.

You can place these assets into a fund all at once or make a series of deposits over some time.

If you choose to transfer these assets into the trust from a different bank or financial institution, various paperwork would need to be completed to warrant the process.

Once your assets are transferred, and the trust is funded, your trustee or agent will be responsible for supervising those assets in accordance with the contract for the benefit of the beneficiary and the trust.

If you own a variety of holdings and securities in your trust, it would be wise to contact an attorney to confirm that your faith is properly set up and the administrative duties are operating smoothly.

Researched and authored by Anna Ratnavale | LinkedIn

Reviewed and edited by Purva Arora | LinkedIn

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