A trust account is a fiduciary account in which a trustee manages assets for the benefit of one or more beneficiaries according to the terms of a trust document (trust instrument).
Key parties: - Grantor (settlor): Creates and funds the trust. - Trustee: Manages the trust assets; has legal title; has a fiduciary duty to the beneficiaries. - Beneficiary: Holds equitable title; receives the benefit of the trust assets.
Trust types (account-level distinctions):
| Type | Key Feature | |---|---| | Revocable trust | Grantor retains control; can modify or dissolve; assets in estate for tax purposes | | Irrevocable trust | Cannot be changed by grantor; assets removed from estate | | Testamentary trust | Created by a will; comes into existence at death | | Living (inter vivos) trust | Created during grantor's lifetime |
Account opening requirements: - Broker-dealer must receive and review the trust agreement (or a certificate of trust). - Must verify the trustee's identity and authority to open the account. - Trustee must be authorized by the trust document to invest in the securities being purchased.
Trustee investment standards: Many states have adopted the Uniform Prudent Investor Act (UPIA) — trustees must invest as a "prudent investor" considering the overall portfolio.
Principal vs. income: Trust accounting distinguishes between principal (growth/appreciation) and income (dividends/interest); different beneficiaries may be entitled to different streams.
> Exam tip: The trustee has legal title; the beneficiary has equitable title. Irrevocable trusts remove assets from the estate. Know that broker-dealers must have a copy of the trust document on file.