An introduction to travel trust accounts: what they are and why you might use them

Managing client funds and building trust are paramount to long-term success for travel business owners. In a travel industry littered with complex regulations, trust accounts are likely to be a big part of the future of financial protection.

Trust accounts have a long-standing history and are widely used in the legal and real estate sectors. They won’t work for everyone in the travel industry but could be right for you. In this post, Ross Leavers from our sister company, Stonecot Trustees, explores the origins of trust accounts, their significance in the travel sector, and the benefits and drawbacks of using them.  

The history of trust accounts

Trust accounts aren’t revolutionary. When someone asks, ” What have the Romans ever done for us?” you can add trust accounts to the list. The Romans and Egyptians knew the risks as well as us. Property back then was often transferred to a trusted person to safe keep for the benefit of a third party.

Trust accounts have evolved over time, but the legal framework that forms much of what we see today was established centuries ago. 

Understanding travel trust accounts

Trust accounts are relatively new to the travel sector, but we expect them to feature heavily when the Civil Aviation Authority (CAA) announce its reforms to the ATOL system later this year.  

Trust accounts can be mandated or voluntary.  Regulatory bodies, such as the CAA, can insist on trust accounts being in place, or they can be triggered in the event of a breach of any specific pre-notified clauses.

The main aim of travel trust accounts is to provide your clients with peace of mind, knowing their money is safeguarded until they return. To achieve this, client funds are deposited into a separate account, managed by a trustee, to protect them from potential risks such as supplier insolvency. You can learn more about how trust accounts work in the travel industry here.

The benefits of travel trust accounts

Trust accounts address regulatory requirements

As a travel business, you have to jump through lots of hoops to ensure you comply with the regulations. The Package Travel and Linked Travel Arrangements Regulations 2018 (PTRs) protect consumers if something goes wrong or the company they’ve booked with goes into administration. 

Trust accounts are just one of the accepted methods for protecting your customers’ money under the PTRs.  You will probably recognise bonding and insurance as the more commonly used methods, but the availability of these options is driven by the insurance marketplace and can often be more expensive.  

Customer confidence and security 

Consumers are becoming more knowledgeable about the importance of booking with operators that offer secure financial protection. By placing customer funds in a separate trust account and protecting 100% of customer monies, you demonstrate your commitment to keeping their money safe until you have delivered their trip. Making them aware of a trust account in marketing can be very effective. 

Better financial planning and stability 

Trust accounts make financial management easier for businesses when segregating and tracking money for specific purposes. As you’re keeping the client money in a separate account away from your own funds,  you can clearly see how much cash you have for your day-to-day operations. 

Having a designated pool of funds can help with budgeting, cash flow management, and investment decisions. 

Reduced risk for merchant acquirers, suppliers and other third parties

Merchant acquirers and other third parties generally support trust accounts as the client’s money is not released from the trust until the completion of the trip, which lowers their risk. This may result in more favourable terms for your business. 

Challenges of travel trust accounts

Financial burden and costs

Setting up and maintaining travel trust accounts can involve additional administrative costs. This includes expenses related to account setup, management, and compliance with regulatory requirements, which can be more challenging for smaller travel businesses to manage. However, in some cases, they can still be cheaper than other forms of financial protection. 

Negative impact on cash flow 

You cannot immediately access funds placed into your trust account, meaning you can’t use them for business operations, which can lead to cash flow challenges. You must manage your finances carefully to ensure you have sufficient funds to cover your day-to-day operations. 

The structure of trust accounts may limit your business’s ability to adapt to changing circumstances quickly, invest in growth opportunities, or respond to unforeseen financial needs. 

Finding suitably qualified trustees 

Trusts are only as robust as the appointed trustees, and not all trusts fully comply with the PTRs. For example, profits or other payments may be withdrawn early, or they may have no insurance to cover repatriation. The legal and regulatory landscape for travel trust accounts is complex and can evolve. Ensure your trustees are up-to-date with the changes to ensure your business is fully compliant. 

Travel trust accounts are difficult to understand 

Navigating the complex legal requirements of setting up a trust can be confusing and laden with technical terminology. And the mechanics of depositing and withdrawing funds can be complex. You’ll need to fully understand the rules in order to model the impact on your cash flow. 

Luckily, we have a team of experts who can help set up and structure a trust account to suit your needs. We can also assist with drafting trust deeds and setting up bank accounts. 

Please get in touch with our friendly team for more information.

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• Five differences between ATOL trust and escrow accounts
• Four characteristics of a travel trust account