Trust Bank

What Is A Trust Bank?

A trust bank is a financial institution that enables the bank's customers to do transactions. The bank takes up the role of trustee during such transactions and helps customers transfer assets to another customer following the trust agreement terms and conditions.

However, it also provides fiduciary services and manages the trusts of businesses and individuals. Government bodies regulate them and follow some laws and regulations. Such rules and procedures through which they operate make them different from regular banks or financial institutions.

• A trust bank is a financial institution that acts as a trustee during customer transactions. It facilitates the transfer of assets between customers based on the terms and conditions of the trust agreement.
• The individual transferring assets are referred to as the settlor, while the recipient of the assets is the beneficiary. The trust bank serves as the trustee and manages the asset transfer on behalf of the customer.
• The functions of a trust bank include offering investment services, assisting with pension plan design, providing brokerage services in real estate, facilitating real estate appraisals, and offering direct and indirect financing.

Trust Bank Explained

A trust bank is a bank that helps in transferring assets among customers through the means of formal contracts known as trust. The customer who transfers their assets is termed the settler. The customer who accepts the settler's assets is termed as the beneficiary. The role of the trustee is to monitor and administer the asset transfer on behalf of its customers.

The trust is the formal document or contract document that spells out which party is the beneficiary and the settler, the nature, details of transactions, and the terms and conditions relative to the asset transfers. A trust bank account performs several functions, such as investment management and asset management. In addition, it maintains all financial records and prepares documents to be used for court accounting. A trust bank generally combines the functions of a depository institution, commercial bank, and a trusted company.

They play a very important role in providing fiduciary and expert services to clients who might be individuals, companies, or any other type of organization by establishing and managing trusts. The rules and regulations that they follow make them different from other financial institutions.

Objectives

Some of the key objectives that these banks aim to achieve are detailed below. Let us understand them in details.

• The community trust bank facilitates transactions of asset transfers. They hold and manage the assets on the beneficiary’s behalf as per the terms of the agreement.
• They monitor and administer the asset transfers between settlers and the beneficiary.
• To act as a fiduciary or an agent on behalf of the trusts.
• To protect the interests of both the settlor and the beneficiary.
• They help their clients manage their portfolios and give advice, asset allocation service to minimise risk and meet goals.  
• Through retirement advice, they help in managing the retirement accounts and guide in term of investment avenues, contribution limits and regulations.
• They also aim to provide tax, insurance and financial related advise and solutions to help in growing the wealth.

History

During medieval times, Romans developed the concept of trust. As time progressed, they established personal trust law in England. During medieval times, crusades happened, and England followed the feudal system. Whenever the English landlord went to crusades, they established fiduciary trusts that handled the assets in their absence and administered the collection of feudal dues. However, as time progressed, the concept of trust kept adapting, and it first observed the sophisticated version in Japan.

The concept of trust bank account emerged in Japan. In 1905, the country established its first secured bond trust system. They achieved this by enacting the secured bond trust act. The legislation so incorporated facilitated financial institutions and banks to exchange and trade bonds. In the early 20th century, Japan had an inflow of large capital-intensive projects, which required the incorporation of a trust bank.

Example

In 1906, the Tokyo trust company mobilized funds among small households and businesses. It also encouraged investments in the financial markets. As time progressed, Japan had more than 400 trust banks by 1921, wherein any Central Authority did not regulate such banks; rather, they were governed by themselves.

In 1922, Japan passed the trust act and trust business act that monitored and governed the business of trusts and provided protection to both settlors and beneficiaries of the trusts. Then, as in present-day, trusts help facilitate intra-family transfers of wealth, and their popularity has now been accepted globally. As a result, they have risen to the utmost importance in the modern American capital markets.

Functions

Given below are some of the basic functions of the trust bank.

• It offers investment management-related services.
• They help formulate and finalize the trust contract and asset transfer documents.
• They additionally help in designing a pension plan.
• They also provide brokerage services in the real estate sector.
• They help in facilitating direct and indirect finance.
• A secure trust bank also offer appraisal services on real estate.
• They help in the administration of the execution of wills.
• They maintain the shareholders registry and play the stock transfer agency role.

Thus, the above are the general functions of the community trust banks.

Trust Bank Account

Now let us understand the trust bank account opening procedure. The trust bank account is a checking account held by a trust. The trustees may utilize this account to perform several administrative transactions related to the functioning of the trust. For example, one could use the bank account to pay up for the incidental expenses and such functions to transfer assets to the beneficiary in the event of the settlor's death.

This type of account is always insured as per the norms of the Federal Deposit Insurance Corporation. The account may house financial resources gathered from multiple resources. For example, the bank account could be cash, insurance policies, and savings. Settlors themselves may open it, or the trustees may extend it when settlers die.

The trustee must comply with the trust agreement's guidelines and instructions during a trust bank account opening. There could be several ways to fund that account. For example, the settlor may add money to the account in small installments throughout the lifecycle of the trust.

The trust account may be funded by the pay-outs that may happen through the maturity of the life insurance policies. After the settlor's death, the settlor or the designated trustees can issue checks on and fund the trust bank accounts. It may be utilized to service the expenses such as finance costs, bills on utilities, insurance premiums, real estate transaction costs, and other miscellaneous costs.

Advantages

A secure trust bank is vital in giving expert and fiduciary services to families, businesses, and organizations in managing and transferring trusts through an agreement. Let us go through the advantages of this system.

• It helps in easily transferring assets from the settlor to the beneficiary.
• They may administer the working of the trusts in the absence of settlers.
• The federal deposit insurance corporation insures the trust bank account.
• It combines conventional banking services along with the functions of administering the trusts.
• They facilitate the appraisals on real estate and provide brokerage services.
• They ensure that all transactions happen or get encouraged by the trust deed.

Disadvantages

Along with the advantages, the system also has some disadvantages which should be noted too. They are as follows:

• The services of this type of bank are more expensive as compared to normal banks or financial institutions. They charge different categories of fees that depend on the type of trust or agreement or assets that are to be transferred or maintained and the level of services that clients ask for.
• The individuals or organization have limited power over the assets or trusts because they are completely managed by the trust bank professionals.
• A conflict of interest is always possible because these banks are profit-oriented institutions, and their interests may conflict with the interests of the trust beneficiaries.
• Over-dependence on these banks may pose a problem if the services that these banks provide are not able to meet the expectations of the beneficiaries or clients.

Frequently Asked Questions (FAQs)

Recommended Articles

This article is a guide to what is a Trust Bank. We explain the account details along with functions, history, example, objectives, advantages & disadvantages. You may learn more about financing from the following articles: -

• Trust Receipt
• Trust Fund
• Trust Account
• Investment Trust