A trust account is essentially an account opened in the name of one party to use for the benefit of someone else. People can set it up at any bank or financial institution to provide a service for clients operating businesses that require them to manage money on behalf of other people (employees, customers, etc.).
A typical example is when an employer wishes their employees’ wages to be paid into an account specified by them. Rather than take individual responsibility for paying every employee’s salary, they may instead decide to open a single company cheque or savings account and have all salaries deposited there. It will allow employers more time to pay attention to their business enterprise and save on salary costs by only paying one salary rather than several.
Trust accounts are not always set up to allow easy access to all parties. For example, if a company were to open an account for its employees’ wages, only the employer will likely have authority over this account. The mistake commonly made by people here is that they inaccurately label the account so that it appears as though the employee would be able to access it independently. It can lead to complications when employers wish to make transfers from these accounts or gain information about their balance and transactions for tax returns or other purposes. To avoid such problems, you should mark trust accounts with your business name, as some banks provide templates of different forms of wording depending on what kind of trust you are setting up.
Trust accounts aren’t always set up to allow easy access for all parties involved. If an employer were to set one up for their employees’ wages, only the employer could likely access this account.
While there is often a small fee attached to trust accounts, it is crucial to consider what you are gaining from opening this account. Private clients usually have a lot more freedom when choosing the right bank for their trust account and can therefore weigh up the pros and cons of each institution before making their decision.
While some financial institutions allow people to set up multiple accounts under one name, others do not. For example, while one bank might allow you to open three business savings accounts under your company name, another may only let you open one. People should know that they will need to explore options at different banks to divide funds among several different employees or customers.
Many financial institutions will offer various kinds of accounts, and it is sometimes difficult to determine which kind you should be opening for your business. Trusts can either be set up as fixed-term or ongoing accounts. A fixed-term account usually requires written advice from the beneficiary (the person who owns the money) that they would like it to remain open for 3-6 months before automatically closing itself. An ongoing trust may require the beneficiary to renew their instructions each year- usually, by simply telling you they wish to continue purchasing goods and services through you and therefore keep their money in your hands.
The nature of your business will determine the kind of account you need to open with a financial institution. For example, suppose your primary concern is safety for large amounts of money. In that case, it might be appropriate to set up an ongoing trust account with multiple signatories- while some people prefer to keep their funds in multiple accounts at different institutions either for convenience or security purposes.
It is important to remember that all business transactions must be recorded and reported to Australia’s taxation department. According to the Australian Financial Security Authority, businesses should maintain records of trust transactions for five years under recordkeeping guidelines.