What is a trust account?

A trust account is an arrangement where the first party (the grantor) allows a third party (the trustee) to manage assets for the trust’s beneficiaries.

In the context of payment and payroll, trusts can also be used to hold payroll funds to make sure they’re properly disbursed, and that relevant taxes and fees are paid to the appropriate authorities.

The benefit of using trust accounts for the global workforce payments process is that it can provide an extra layer of transparency and security within the global payroll process. They can make the payees feel that their funds are safe and are being handled in compliance with relevant laws and regulations.

How to open a trust account

There are several steps behind setting up a trust fund. For simplicity, we’ve narrowed down the process to six simple parts.

Figuring out the trust you want

There are lots of trusts out there, each with their own purposes and uses. Figuring out the trust that suits your needs is the first step.

Choosing the trustee

The trustee is the person or entity in charge of managing the assets. It’s important that your trustee of choice is knowledgeable of the relevant laws and regulations and knows how to compliantly manage funds.

Gathering the required documentation

To establish the trust, you’ll need to get the right documentation in order. This documentation should include legal documents like a trust agreement, as well as personal identification and proof of source of the funds.

Opening the trust account

Once the right documentation is assembled, you can open the trust account with a financial institution. This can involve filling out an application, providing the right documentation, and paying the relevant fees.

Funding the trust account

You can choose to fund your account with real estate, stocks, bonds, or cash, depending on what type of trust account you’ve opened.

6 common types of trust accounts

There are a whole lot of trust account types out there, each with its own unique set of financial planning goals. Below are six common types of trust accounts.

Living (or ‘revocable’) trusts: Living trusts are set up by the grantor during his/her lifetime. The grantor can change or revoke the trust whenever they see fit. The purpose of this trust is to manage the assets in case something happens to the grantor. For example, if the grantor passes away, family members or beneficiaries can rely on the fund to avoid a lengthy probate process.

Testamentary trusts: Testamentary trusts are established through a will. They only become effective after the grantor passes. These types of accounts are often used to manage assets for minors or beneficiaries who aren’t able to manage their assets themselves.

Irrevocable trusts: These trusts can’t be revoked or changed. They’re often used for estate planning purposes. For example, this model can be a way for the grantor to avoid paying estate taxes on certain assets while still being able to leave them for the beneficiaries.

Charitable trusts: Charitable trusts are used for philanthropic purposes, including offering charitable organizations a source of ongoing funding while still giving the grantor tax benefits.

Special needs trusts: This type of trust is used to support beneficiaries with special needs, while also keeping them eligible for government benefits.

Asset protection trusts: These trusts are used to protect funds from creditors and legal judgements. Often, they’re operated by people with vocations that make them more susceptible to being sued – like doctors or business owners.

What is an international payroll trust account?

This type of trust is often used in the context of payroll payments. They are designed to hold funds that are set aside to pay international employees or contractors in multiple countries.

This trust allows for payments to be properly made across different countries, while adhering to the local tax laws and the required payments made to the relevant authorities.

Often these accounts are set up by multinational corporations with employees or contractors across the globe. The benefit of this fund is that assets can be held in multiple currencies so that payments can easily be made using local currency. It also makes for an overall smoother process in terms of adhering to local regulations and legal requirements.

Trust accounts for global expansion

A lot of businesses looking to expand their operations see trust accounts as an effective way to stay within the lines of local regulations and tax requirements in the respective countries they are expanding to. Benefits can include:

• A smoother process of paying taxes and fees to local authorities.
• Transparency and accountability – building trust with local employees and regulators.
• Mitigating currency risk – trusts can be used to hold funds in local currency and convert back to the home currency of the business whenever necessary, mitigating the risk of currency rate fluctuation.