Can a Trust Have an Interest-Bearing Checking Account?
An interest-bearing checking account allows trusts to earn additional income on the money they manage. Whether a trust is allowed to have an interest-bearing checking account depends on the type of trust. Most trusts are allowed to have interest-bearing checking accounts, but trusts that hold money for other people, such as legal trusts, may not be allowed to keep the interest earned.
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Charitable Trusts
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Many charitable trusts use checking accounts to allow the trustees to disburse trust funds, to pay fees and expenses or purchase investments. There are no set rules for whether this checking account should be interest-bearing or not. The trust document -- the legal document that establishes the trust -- should set out whether the trust may use an interest-bearing checking account or not. The trust document should also set out whether the interest should be paid into the trust account, or disbursed to the beneficiaries.
Living Trust
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With a living trust, you place all of your assets, such as property, into a trust while you are still alive. Instead of owning the assets, your trust owns the assets and you are the beneficiary. This is generally done in order to avoid probate. While many people do not put their checking accounts into living trusts, since the checking accounts are used all the time, there is nothing to prevent you from placing your checking account into the trust, and from the trust having an interest-bearing checking account. Any interest earned will go directly into the trust, and can be used by the trustee.
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Legal Trusts
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Lawyers are often required to keep money on behalf of their clients. This money must be kept in a separate client trust account. Lawyers are allowed to pool money from several clients and place them in one account, but these accounts are generally prevented from earning interest. One type of client trust account, called an Interest on Lawyer Trust Account is a checking account that earns interest. These checking accounts are legal in every state. The interest earned from the accounts is sent to the bar organization in the lawyers' state and the money is used to provide legal aid to indigent clients, or for other charitable purposes.
Real Estate Trust Accounts
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Real estate agents use trust accounts to hold onto deposits, down payments or other money until the transaction has been completed. Using a trust account prevents any of the parties from accessing the money until all the terms of the transaction have been met. Real estate trust accounts are often checking accounts, so the money can be paid over to the seller easily. In some states, such as Wisconsin, real estate trust accounts are required to be interest-bearing. In Wisconsin, interest from these accounts is handed over to the state, to use for homeless programs.
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