A bank and trust company is one institution that handles both everyday banking and manages money or property on your behalf
A bank takes deposits, makes loans, and processes payments—the services you use when you open a checking account or get a mortgage. A trust company manages assets, property, or money for someone else according to legal instructions. Many large financial institutions do both under one roof. When they do, they're called a bank and trust company, or sometimes a trust bank.
The key difference is who owns the money. When you deposit money in a checking account, the bank owns it legally—you own the right to use it. When a trust company holds money or property in a trust, the trust company is the legal owner, but it must follow the instructions in the trust document about who gets to use it and when. That separation matters because it protects the money from the trust company's creditors and keeps it separate from the bank's regular operations.
You might encounter a bank and trust company in two separate ways: as a customer with a regular account, or as a beneficiary of a trust that the company manages. Some people deal with both at the same time.
Key Takeaways
- A bank handles deposits and loans; a trust company manages money or property according to legal instructions in a trust document.
- Trust companies hold assets in their legal name but must follow the trust document's rules about who receives the money and when.
- Many large financial institutions offer both services, but the trust side operates under different legal rules than the banking side.
- You might use a bank and trust company as a regular customer, as a beneficiary receiving money from a trust, or both.
- Trust companies charge fees for managing trusts, which vary based on the size of the assets and the complexity of the instructions.
How a bank operates versus how a trust company operates
A bank's main job is to hold your money and move it around. You deposit funds, the bank keeps them in a vault or invests them, and you can withdraw or transfer them whenever you want (within the account rules). The bank makes money by charging fees and by lending out deposits at a higher interest rate than it pays you. The Federal Deposit Insurance Corporation (FDIC) insures bank deposits up to $250,000 per account holder per bank, so if the bank fails, your money is protected.
A trust company's main job is to hold and manage assets according to a legal document called a trust. The person who creates the trust (the grantor) writes instructions: who gets the money, when they get it, and what the trust company can or cannot do with it. The trust company follows those instructions, not the wishes of the person receiving the money. If the trust says money goes to your child at age 25, the trust company cannot give it to them at 21, even if they ask. This is the protection that trusts provide—the money is locked into the plan the grantor created.
Trust companies also manage property, not just cash. They might hold real estate, stocks, bonds, or a business interest. They collect income from those assets (rent, dividends, interest) and distribute it according to the trust document. They file tax returns for the trust, keep records, and sometimes make investment decisions if the trust document gives them that power.
Why someone would use a trust company instead of just a bank account
A trust provides structure and control that a regular bank account does not. If you die with money in a bank account, that account goes through probate—a court process that can take months or years and costs money in legal fees. A trust bypasses probate because the trust company already owns the assets; when you die, the trust company simply distributes them according to your instructions, usually within weeks.
A trust also protects money from creditors in some situations. If you put assets in a trust before you face a lawsuit or debt, those assets may be shielded from claims against you. (This varies by state and by the type of trust, so it is not a may provide.) A regular bank account offers no such protection.
Trusts are also useful when you want to control how money is used after you die or if you become unable to manage it yourself. You can instruct the trust company to give money to a child only for education, or to hold it until they reach a certain age, or to give it to multiple people in different amounts. You can name a successor trustee to take over if the current trustee dies or resigns. None of this is possible with a simple bank account.
Some people use trusts to manage money for a minor child, a family member with a disability, or a spouse who is not able to handle finances. The trust company becomes the legal manager, and the beneficiary receives money according to the trust's rules, not their own whims.
What fees a trust company charges
Banks charge fees for accounts and services—overdraft fees, monthly maintenance fees, wire transfer fees. Trust companies charge fees for managing the trust itself. These fees are usually a percentage of the assets under management, ranging from 0.5% to 2% per year depending on the size of the trust and how complex it is. A trust holding $100,000 might cost $500 to $2,000 per year. A trust holding $1 million might cost $5,000 to $20,000 per year.
Some trust companies charge a flat annual fee instead of a percentage. Others charge hourly rates for specific work—preparing tax returns, handling distributions, or dealing with disputes. The trust document usually says who pays these fees: the trust itself (which reduces what beneficiaries receive), the grantor (while alive), or the beneficiaries (after the grantor dies).
You should ask about fees before you hire a trust company. Compare what different institutions charge and what services are included. Some banks offer trust services as part of a package; others charge separately. The fees should be spelled out in writing before you sign anything.
How a bank and trust company protects your money
Banks are regulated by the Federal Reserve, the FDIC, and state banking authorities. They must keep a certain amount of capital on hand, undergo regular audits, and follow strict rules about how they invest deposits. If a bank fails, the FDIC steps in and pays depositors up to $250,000 per account. This protection applies to checking accounts, savings accounts, and money market accounts.
Trust companies are regulated differently. They must be licensed by the state and often by federal authorities as well. They must keep trust assets separate from the bank's own money—this is called segregation. If the bank fails, trust assets are not touched because they are not the bank's property. The trust company must also carry errors and omissions insurance, which covers mistakes in managing the trust.
However, trust assets are not FDIC-insured. If a trust company invests trust money in stocks or bonds and those investments lose value, the trust bears the loss. If the trust company makes a bad investment decision, the beneficiaries may have a legal claim against the trust company, but they do not get automatic government protection like bank depositors do.
When you might need to work with a trust company
You might encounter a trust company because someone named it as the trustee of a trust that benefits you. In that case, you contact the trust company to ask about distributions, to report a change of address, or to understand what the trust will pay for. The trust company sends you statements and tax documents.
You might also hire a trust company yourself if you are creating a trust. You can name the trust company as trustee, or you can name a family member or friend and have the trust company act as co-trustee or successor trustee. Some people name themselves as trustee while alive and name the trust company to take over after they die.
You do not need a trust company to create a trust. You can write a trust document with an attorney, name anyone you want as trustee (including yourself), and manage it yourself or with help from a financial advisor. But if you want professional management, legal protection, and someone to handle the details after you die, a trust company provides that service.
The difference between a bank and trust company and other financial institutions
A bank and trust company is different from an investment firm, which buys and sells stocks and bonds for you but does not hold your money in trust. It is different from a financial advisor, who gives you advice but does not manage your money legally. It is different from an insurance company, which sells policies but does not manage trusts.
Some credit unions offer trust services, though most do not. Some law firms work with trust companies to help clients set up trusts. Some accounting firms manage trusts for tax purposes but do not hold the assets themselves.
The key distinction is legal ownership and control. A bank and trust company takes legal ownership of trust assets and follows the trust document's instructions. Other institutions advise, invest, or insure, but they do not take on that legal responsibility.
Frequently Asked Questions
Can I put money in a trust at a bank and trust company and still access it whenever I want?
It depends on the type of trust. A revocable living trust lets you access the money whenever you want because you are the trustee. An irrevocable trust or a trust created after you die does not—the trustee controls access according to the trust document. Ask the trust company what type of trust you have before you assume you can withdraw funds.
What happens to a trust if the bank and trust company goes out of business?
Trust assets are separate from the bank's assets, so they are not lost. A regulator will appoint a new trustee or allow the trust company to transfer the trust to another institution. You may face delays, but your money is protected by law.
Do I need a lawyer to set up a trust with a bank and trust company?
You should have a lawyer draft the trust document to make sure it says what you want and follows your state's laws. The bank and trust company will not write the document for you, though they can explain what options exist and what their fees are.
Can a trust company refuse to make a distribution I think I am may have access to to?
Yes, if the trust document does not allow it. The trustee's job is to follow the document, not your wishes. If you believe the trustee is wrong, you can ask a lawyer to review the document or file a complaint with the state regulator.
Is money in a trust taxed differently than money in a bank account?
Yes. Trusts file their own tax returns and pay tax on income at trust tax rates, which are higher than individual rates. Distributions to beneficiaries may be taxable to the beneficiary. A tax professional or the trust company can explain how your specific trust is taxed.