Trust vs. Brokerage

When you establish a trust you sign a legal document that contains instructions on the future management of certain assets. The assets controlled by a trust belong to the trust, and consequently trusts are legal entities. Brokerage accounts are investment holding accounts in which you can keep various types of securities, but brokerage accounts are not legal entities.

You can transfer ownership of bank accounts, stocks, bonds, real estate and other types of personal property to a trust. When you establish a brokerage account you normally make a cash deposit and then use those funds to buy securities such as stocks, bonds and mutual fund shares. You cannot hold real estate or transactional bank accounts in a brokerage account. However, you can own shares in funds that invest in real estate and bank-issued certificates of deposit that are sold on the secondary market as securities.

Trusts come in many types, including living trusts and testamentary trusts. In a living trust, a trustee handles the daily management of the trust and the eventual transfer of assets from the trust to named beneficiaries. A testamentary trust comes into existence when the person creating the trust dies. The deceased's assets are transferred to the trust and a trustee distributes the assets to the trust beneficiaries. You can open a brokerage account as a trust account, a single ownership account or a joint ownership account. Other legal entities such as businesses can also operate brokerage accounts.

Those who are establishing trusts usually hire attorneys to draw up the trust document, and, depending on the complexity of the trust, you may choose to hire a trustee to manage the trust. Brokerage accounts also involve fees that are assessed any time you buy or sell securities. If you have an investment adviser, your broker may also charge an annual fee for helping to manage your brokerage account. You can set up a discount brokerage account without an investment adviser to reduce the cost but you still pay transactional fees.

You can transfer assets held in a brokerage account to another brokerage account at another investment firm because, although your securities are held in the account, you have direct ownership of the securities. You can also establish new accounts for a trust by providing financial institutions with a copy of the trust and transferring assets from other financial institutions. Legal entities, including trusts and individuals, must file tax returns, although some trusts operate under the trust makers own Social Security Number and do not have a separate Tax Identification Number.