How to open a trust account
You can open an account in trust for a child or grandchild until they're old enough to manage it themself.
Key takeaways
- A trust account is not the same thing as a trust fund.
- A trust account is a bank account that you open on behalf of a child in your name, which you retain ownership of.
- The child will gain ownership of the account when they reach a certain age, usually 18 but sometimes as young as 12.
What's the difference between a trust account and a trust fund?
When some people hear the words "trust account", they immediately think of a trust "fund", which is actually a completely different thing.
A trust account is a bank account that you open for your child; but rather than opening the account in your child's name, you retain ownership of the account. A parent or grandparent can be the trustee for the child's account, but once the child turns 18 (or sometimes younger), control of the money in the account will pass to them.
Meanwhile, a trust fund is a legal arrangement in which the ownership of a person's assets (not just cash but shares, bonds, property and even antiques) is transferred to a family trust and managed by trustees for the benefit of others. Any person who receives cash, property or other assets from the trust is known as a beneficiary.
Family trusts are usually only considered as an option for managing a child's future finances when you have substantial assets to invest. Once the child reaches a certain age, for example 18 or 21, they can access the assets in the trust fund.
Looking for a kids bank account instead?
Compare savings accounts that you can open in trust for a child.
How to open a trust account
1. Pick an account
Do you want a bank account that you can open in trust for your child, or a savings account that earns some interest? You might decide it's easiest to open an account with the same bank that you already bank with, but you don't need to do this.
2. Apply for the account
There are typically 3 ways you can apply to open an account in trust for a child: over the phone, online or in person at a branch. Check with your chosen bank how they'd like you to apply. In some cases, you may need to visit a physical branch.
3. Provide ID
You may need to provide ID for your child when opening a trust account – and if you're not an existing member of the institution, for yourself. For the child, this is usually their birth certificate, but you may also need their Medicare card or school attendance letter. It can vary between banks, so if you're not sure, call ahead to confirm.
4. Provide your TFN
As with opening a bank account in your own name, you will need to provide your tax file number. There are strict ATO rules regarding children's savings accounts, which you can read more on below.
"I opened a savings account for my daughter when she was just a few months old. The account is in her name, however is managed by my husband and I as the trustees of the account until she's 18. We did have to go into a branch to do this, and we did need to supply various forms of ID for her including her birth certificate and Medicare number.
The account is a great way for her aunties, uncles and grandparents to gift her small amounts of money for things like Christmas and her birthday, which I'm sure she'll really appreciate when she turns 18."
What type of trust account?
You can choose to open a savings account, term deposit or standard bank account in trust for your child. High-interest savings accounts offer some of the best interest rates around, allowing you to grow your balance as quickly as possible.
Meanwhile, term deposits provide the security and consistency of guaranteed returns. These accounts let you lock in a fixed interest rate for a prearranged time – for example, 1 or 2 years.
A standard kids bank account provides no interest on the balance, but the money is easily accessible whenever you need it.
How and when do the funds transfer to my beneficiary?
If you open a bank account in trust for your child, you will need to pass control of the account to the child when they turn 18. This will be an automatic process, and your bank will outline the terms and conditions when you open the account.
Depending on the terms and conditions of the account, you may also be able to hand control over to your child before they reach 18 years of age if you'd like to. However, some bank accounts can only be held by people who are at least 18 years of age, so check these requirements with your bank.
What are the tax implications to consider?
The ATO has strict rules concerning children’s savings accounts, particularly if the account you hold in trust for your child earns interest income.
Regardless of who holds the account or what type of bank account it is, the person who should declare the interest on their income tax return is determined by who provides and uses the funds. This is why you need to quote your TFN when you open the account or, if a formal trust structure is in place, quote the trust’s TFN.
This is different to the tax rules that apply to interest that children under 16 earn on savings accounts. If a child provides money into a savings account and decides how it is spent, taxes will apply if they earn more than $420 interest per year.
If you’re at all confused about the taxation rules concerning trust accounts, ask your accountant or financial adviser for assistance.
Savings accounts you can open in trust for your children
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What are the best savings & transaction accounts earning decent interest for trust a/c’s? e.g. family trusts, testamentary trusts & SMSF’s
Hi Bruce,
Thanks for your question.
Currently, we don’t compare best accounts by trust type. Also, depending on the trust account and product type, the availability and requirements might vary depending on banks. For example, some banks might not offer trust accounts for their kid’s savings products.
I would suggest use our best savings accounts page and best transactions accounts page to identify banks with competitive rates and then contact them directly about setting up a trust account.
Thanks
Raj
I would like to set up a Trust Account for my sibling, as requested in my Late Mothers Estate Will/Probate. My sibling is 58 years old and is uncapable of managing her own finances.
How do I go about this so the solicitor can deposit money from the Estate and I can pay my siblings debts?
Hi Tilly,
I am very sorry to hear about your mother’s passing.
I’d recommend you to seek guidance from a professional accountant or solicitor with experience in the establishment and management of testamentary trusts and wills.
An accountant or solicitor would go over the terms of trusts in the Will and explain the process to set up each testamentary trust. They can provide detailed advice on your personal situation including what assets should go into a testamentary trust (which could include depositing money from the estate), how (and if) you can settle your sibling’s debts, give advice on the naming conventions, including formal instructions detailing what your obligations and next steps are.
Thanks,
Alison
We live in the UK and would like to open a “Trust Account” for our granddaughter in Australia, with us as trustees. Is this possible?
Hi Tom,
Thanks for your inquiry
Opening a bank account with an Australian bank is a simple process given that you’reyou have plans to move or stay in Australia in the future. If you reside in another country and don’t intend to migrate to Australia, you’ll need to speak to a local bank who has international ties with a bank in Australia. Those on a tourist or visitor visa can open an Australian bank account by visiting a local branch and providing your passport.
Hope this information helps
Cheers,
Arnold
If a child is under the age of 5 has a trust account that contains over $100,000, will the low income parent incur the tax from the interest?
Also is the government guarantee capped on the child’s or the trustee’s name?
Hi Toni,
Yes, the tax will apply to the trust account of a child if you are the trustee who provides money and uses it. In this case, you would need to provide your TFN or quote your trust’s TFN. I would suggest that you seek out professional advice on tax from an accountant or financial adviser who will consider your personal circumstance.
As for your second question, the government guarantee would apply to the owner of the account. Basically, the guarantee is $250,000 per person and per institution. Best that you confirm with your bank about the guarantee for the child’s trust account. Please feel free to read more about the government guarantee scheme on our website.
Hope this helps.
Best,
Maria