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By opening a trust account for a loved one, you can help them to save for their education, their wedding or even for the deposit for their first house. But what is a trust account and what do you need to know before you open one? Let’s take a closer look.
How to open a trust account
1. Do your research
Before you open up an account, research at what kind of institution you want the account to be held in: a bank, a building society or a credit union. You should also work out what kind of account you want to open (more below).
2. Apply
There are typically 3 ways you can apply to open a trust account: over the phone, online or in person at a branch. Check with your chosen financial institution on the best way to apply. In some cases, you may need to visit a physical branch to provide certain documents.
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.
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, control of the funds 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?
If you're looking to give your children a good financial start, it might be worth looking into a kids bank account. Take a look at our Kids Banking Hub to find out more.
What type of trust account?
There are 2 types of accounts you should consider when opening a trust account for a child: a savings account and a term deposit. High-interest online savings accounts offer some of the best interest rates around, allowing you to grow your balance as quickly as possible. Some even allow you to earn bonus interest if you satisfy specific conditions, such as depositing a minimum amount into the account each month.
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. This means you will not be affected by any interest rate drops that occur, but you won’t be able to enjoy the benefits of any rate rises being applied to your deposit.
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. 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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Providing for a child or grandchild’s financial future is not the only reason why you might open a trust account. For example, if you and your family members join forces to purchase an investment property through a trust, you’ll need to set up an account where the funds belonging to that trust can be held.
If you’re a solicitor, real estate agent or accountant, you might consider operating trust accounts into which clients pay their funds. If you’re the trustee for a parent’s estate following their death, the finances they leave behind will be paid into a trust account until they can be properly distributed to the relevant beneficiaries.
While this article deals with opening a trust account for a child or grandchild, keep in mind that different circumstances and features will apply to different types of trust accounts.
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According to Finder’s Parenting Report 2023, 1 in 3 parents have used the money they set aside for their children on something else.
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SPONSORED: Your kids are never too young to learn about managing money.
Rebecca Pike is Finder's senior writer for money. She joined Finder after almost four years writing for business publications in the mortgage and finance industry, including three years as editor of Mortgage Professional Australia. She regularly appears as a money expert on programs like Sunrise and Today, as well as across radio and newspapers. She also holds an ASIC-recognised Tier 1 Generic Knowledge certification.
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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 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?
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.
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.
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?
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.
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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