What a trust savings account is and why you might need one

A trust savings account is a savings account held in the name of a trustee for the benefit of another person, usually a minor or someone unable to manage money themselves. The trustee—often a parent, grandparent, or guardian—controls the account, makes deposits and withdrawals, and manages the money until the beneficiary reaches a set age or the trust ends. The account itself belongs to the beneficiary legally, which has tax and credibility implications you need to understand before opening one.

People set up trust accounts to save for a child's future, protect money left to a minor in a will, or manage funds for someone with a disability. The account keeps the money separate from your own finances and creates a clear record of what belongs to whom. Unlike a regular joint account where both people can withdraw funds, a trust account gives you control while the law recognizes the money as belonging to the beneficiary.

The two main types are Uniform Transfers to Minors Act (UTMA) accounts and Uniform Gifts to Minors Act (UGMA) accounts. UTMA accounts (available in most states) can hold real estate, artwork, and other property in addition to cash. UGMA accounts (older and less common now) hold only cash and securities. Both work similarly: you deposit money, it grows tax-deferred to some degree, and the beneficiary gains control when they reach the age of majority in your state—usually 18 or 21.

Key Takeaways

  • You will need the beneficiary's Social Security number, proof of your identity, and the beneficiary's birth certificate or proof of age to open a trust account.
  • UTMA and UGMA accounts are the most common trust structures for minors and require you to name yourself as custodian on the account.
  • The beneficiary's Social Security number becomes the account's tax ID, so income earned in the account is reported on their tax return, not yours.
  • Once the beneficiary reaches the age of majority in your state (usually 18 or 21), the account transfers to them automatically and you lose control.
  • Banks, credit unions, and investment firms all offer trust accounts, and the process takes one to two weeks from process to funding.

Documents and information you need to gather

Before you walk into a bank or start an online process, collect these items. You will need your government-issued ID (driver's license, passport, or state ID), your Social Security number, and your current address. The bank will verify your identity and check you against fraud databases.

You will also need the beneficiary's Social Security number and proof of their age or identity. A birth certificate works, or a state ID if the beneficiary is old enough to have one. If you do not have the Social Security number yet, you can request one from the Social Security Administration before opening the account, or some banks will let you complete the process and add it later—though the account cannot be fully funded until it is on file.

Have the beneficiary's full legal name exactly as it appears on their birth certificate. The account will be titled something like "John Smith, Custodian for Sarah Smith Under the [Your State] Uniform Transfers to Minors Act." The exact wording varies by state and by bank, so the bank will provide the correct language.

Choosing between banks, credit unions, and investment firms

You can open a trust account at a traditional bank, a credit union, or an investment firm. Each has different features and fee structures. Banks and credit unions offer savings accounts and money market accounts with FDIC or NCUA insurance (up to $250,000 per account), which protects your money if the institution fails. Investment firms offer brokerage accounts where the money can be invested in stocks, bonds, or mutual funds, which means the balance can go up or down based on market performance.

If you want the money to grow slowly and safely, a bank or credit union savings account is straightforward. Interest rates are low but stable. If you want growth potential and are comfortable with market risk, an investment firm brokerage account gives you more options but requires you to make investment decisions. Some families use both: a savings account for money needed soon and a brokerage account for long-term college savings.

Compare fees across institutions. Some charge annual custodian fees ($25 to $100 per year), inactivity fees if you do not make deposits regularly, or transaction fees for withdrawals. Credit unions often have lower fees than banks. Online banks typically have no monthly fees and higher interest rates on savings, though you cannot deposit cash in person.

The process and account setup process

Start by visiting the bank, credit union, or investment firm's website or walking into a branch. Tell them you want to open a custodial account under UTMA or UGMA (whichever your state uses—the institution will know). You can explore online, by mail, or in person. Online is fastest if the institution supports it.

Fill out the account process. You will provide your information, the beneficiary's information, and confirm that you are opening the account as custodian. You will choose the account type (savings, money market, or brokerage) and the initial deposit amount. Most institutions require a minimum opening deposit, usually $25 to $100, though some have no minimum.

Sign the process. If you applied online, you may sign electronically. If you applied in person or by mail, you will sign in front of a bank employee or have your signature notarized. The bank will verify your identity using your government ID and may run a background check.

The account opens within one to two business days. You will receive account statements in the mail or online showing the account number, the custodian name, and the beneficiary name. Make a note of the account number and keep the statements for your records. You can now deposit money.

How deposits work and what you can fund the account with

You can deposit cash, checks, or electronic transfers into a trust account just like any other savings account. If you opened the account at a bank or credit union, you can deposit cash at a teller window or ATM (if the ATM accepts deposits). You can mail a check or set up automatic transfers from another account you own.

For investment accounts at a brokerage, you typically cannot deposit cash directly. Instead, you transfer money from your bank account electronically, and the brokerage holds it as cash until you decide what to invest in. Some brokerages offer a sweep feature that automatically moves uninvested cash into a money market fund to earn interest.

You can also fund a trust account with a gift of money from someone else—a grandparent, aunt, or friend can give you money to deposit on behalf of the beneficiary. Once the money is in the account, it belongs to the beneficiary legally, even though you control it. This matters for tax purposes and for means-tested programs like financial aid.

Tax reporting and what happens to earnings

Income earned in a trust account is reported on the beneficiary's tax return, not yours. The bank or investment firm will send a Form 1099-INT (for interest) or Form 1099-DIV (for dividends) to the beneficiary's Social Security number each January. If the beneficiary is a minor and has no other income, they may not owe taxes on the earnings, depending on the amount and your state's rules.

The first $1,250 of unearned income (interest, dividends) is usually not taxable for a dependent minor (this amount changes yearly, so check current IRS rules). Income above that is taxed at the child's rate if they file a return, or at your rate if you claim them as a dependent. This is called the "kiddie tax" rule. It is designed to prevent parents from shifting income to children in lower tax brackets.

You do not report the account on your own tax return. The money is not yours, so it does not count as your income or your asset for tax purposes. However, it may affect the beneficiary's may be able to access for financial aid in college, since colleges consider student-owned assets when calculating aid. This is one reason some families use other structures like 529 plans for college savings, though those have different rules and restrictions.

What happens when the beneficiary turns 18 or 21

When the beneficiary reaches the age of majority in your state—18 in most states, 21 in a few—the account automatically transfers to them. You lose all control. They can withdraw the entire balance, spend it however they want, or leave it in the account. You cannot stop them or require them to use it for education or any other purpose.

This is a significant change from a regular savings account you control. If you want to maintain control over the money longer, or if you want to restrict how it is used, a trust account is not the right tool. You would need a formal trust document created by an attorney, which is more complex and more expensive but gives you much more control over when and how the money is distributed.

Before the transfer happens, you should talk to the beneficiary about the account and what you intended it for. If they are old enough to understand, explain that the money is theirs and what you hoped they would use it for. Some families set expectations; others let the beneficiary decide. Either way, the legal transfer is automatic, so plan accordingly.

Frequently Asked Questions

Can I open a trust account for someone who is not a minor?

UTMA and UGMA accounts are designed for minors. If you want to set up a savings account for an adult—such as someone with a disability or cognitive impairment—you would need a different structure, such as a power of attorney, a conservatorship, or a formal trust. These require legal documents and sometimes court involvement. Speak with an attorney about which option fits your situation.

What if I want to take money out of the account?

As custodian, you can withdraw money from the account, but it must be for the benefit of the beneficiary. This means education, medical care, living expenses, or other needs directly related to the beneficiary's welfare. You cannot withdraw money for your own use. If you do, you are legally liable and the beneficiary can sue you when they turn 18. Keep records of what the money was used for.

Can I name someone else as custodian if something happens to me?

No. UTMA and UGMA accounts do not allow a successor custodian. If you die or become unable to manage the account, the beneficiary's parent or guardian takes over, or the court appoints someone. If you want to may support a specific person manages the account if you cannot, you need a formal trust document, not a custodial account. Discuss this with an attorney if it is a concern.

Does opening a trust account affect the beneficiary's Social Security benefits?

It depends on the type of benefits. Money in a trust account counts as the beneficiary's asset for means-tested programs like Supplemental Security Income (SSI) or Medicaid. If the beneficiary receives SSI, a large trust account can disqualify them. If this is a concern, speak with a benefits counselor or attorney before opening the account. There are special trust structures designed to avoid this problem.

Can I change my mind and close the account?

You can close the account, but the money still belongs to the beneficiary. If you close it, you must transfer the balance to another account in the beneficiary's name or give it to them. You cannot keep the money for yourself. Once you have funded a custodial account, the money is legally the beneficiary's, even though you control how it is spent.