Definition
The term account in-trust refers to an asset that is managed by a trustee on behalf of the beneficiary. The most common example of an account in-trust is a parent establishing a fund on behalf of a child.
Explanation
Also referred to as an in-trust account and an account held in trust, this type of fund is typically established by a parent for a minor child. Once the child reaches legal age, the account is transferred to this young adult.
In addition to assets, or money, the following parties are participants in this transaction:
Beneficiary: the individual that benefits from the account and is ultimately the owner of all assets.
Donor: the individual gifting, or placing, funds into the account.
Trustee: the individual responsible for managing the account until the minor reaches legal age.
An in-trust account is typically an informal trust that does not involve a deed of trust. Donors must ensure beneficiaries and trustees are clearly documented to avoid any future legal or tax implications. Unless there is an arms-length relationship between the donor and beneficiary, the donor is responsible for all income tax liabilities associated with the trust. Since most trusts are established by parents of the beneficiary, they remain liable for income tax due on the account.
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