Bank accounts for Trusts and Company Trustees

This is a copy of a post from invested.com.au which really helps me understand the relationship between a trust and company trustee. This is not legal or financial advice just an easy way to understand it.

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You need to understand that a trust isn’t a separate entity … it is what’s called a “legal fiction” (it only exists in the minds of lawyers ).

A trust requires a trustee to operate things on its behalf. This is usually either a company or an individual - in your case, you are looking at using a company for the trustee.

The trustee company is effectively just a shell company which does nothing more than act as a trustee. It holds no assets, it does not trade, and most importantly, it does not put itself at risk (if it did, the assets it looks after may also be at risk). As such, because the trustee company does nothing, it doesn’t need its own bank account (beyond that which it operates in its capacity as trustee).

The trust doesn’t have a bank account - the trust doesn’t exist. The trustee has a bank account which it operates “in trust” for the beneficiaries.

It takes a bit to get your head around … but remember, the trustee does all the work but doesn’t own anything itself - the trust does. The trust doesn’t exist, so it can’t do anything without the trustee - hence, the trust doesn’t actually do anything.

Come tax time you will get a tax return for the trust (!!!), and a set of financial reports for the trustee company (which don’t say anything, since it didn’t actually do anything).

It might help to think about it this way: trusts are only about ownership … a trust is used to designate who the beneficiaries of an asset is. The trustee company holds the assets in trust for those beneficiaries. In most situations you only deal with the trustee company - except when buying assets, at which time you designate that the asset is held in trust by the trustee company.

Of course, there is nothing stopping you from having the trustee company do it’s own thing like a normal company would … including running a business or owning assets, but it’s strongly not recommended … the trustee company should do nothing more than run the trust.

(PS. none of this is advice - I am not a solicitor or accountant, this is just my understanding based on what I’ve learned from my own accountants).