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Trust accounts, in-trust accounts and trusts: Everything you need to know to choose the right one

17 May 2019 by National Bank
Trust account

Trust accounts and in-trust accounts allow you to manage the money of a third party. They each have their own features and should not be mistaken for an actual trust.

Trust accounts and in-trust accounts allow you to deposit, manage and withdraw the money of a third party.

Therefore, a trust account or an in-trust account is one that you would open for your daughter, for example, to manage the money deposited into that account on her behalf. In this case, both your names would be tied to the account as follows: “Your name, on behalf of the account in the name of your child.”

Trust accounts: for professionals

Trust accounts are operated by liberal professions, such as lawyers and notaries, who use them to handle their clients’ funds.

For example, a notary would deposit the sum of a property sale into their trust account and then send the money to the seller once the required verifications have been completed.

Lawyers use trust accounts to deposit retainer fees and disbursements from their clients. Afterwards, they can transfer these sums to their administrative account once their work has been completed.

Trust accounts and in-trust accounts, however, should not be mistaken for actual trusts.

Trusts: protect your assets

Actual trusts are subject to strict regulations that do not apply to trust accounts or in-trust accounts.

The deed is what grants legal standing to the trust. Creating an account must be followed by an irrevocable donation, such as a sum of bank bills, an ingot or a numbered coin.

“People think they have a trust because they opened a trust account, but that is not the case,” says François Archambault, Senior Advisor, Expert Centre at National Bank.

Trusts include testamentary trusts as well as trusts that can be created for a living person, which are called inter vivos trusts. You can create a trust if you’re an entrepreneur and want to divide your estate to reduce your tax burden, protect your assets or plan the succession of your business.

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Principle of non-intervention

Trust accounts opened by lawyers and notaries are monitored by their respective professional orders. They ensure strict control over their members’ trust accounts.

A personal in-trust account isn’t subject to the same control. In this case, it’s actually the relationship of trust between the holder and the person named in the trust that takes precedence.

When it comes to the financial institution that houses the account, “the principle it uses is one of non-intervention. The institution has no business checking on the activities of their client’s account,” explains Marc Lacoursière, professor of banking law at Université Laval. “Of course, if the institution has any doubts and suspects questionable account activity, it must be vigilant and investigate what is going on.”

Regardless of the reason why you want to divide your capital, it’s best to explore all your options with the help of a trust advisor.

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