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A living trust can help you manage and pass on a variety of assets. However, there are a few asset types that generally shouldn’t go in a living trust, including retirement accounts, health savings accounts, checking accounts, life insurance policies, UTMA or UGMA accounts and vehicles.
Living trusts can be useful estate planning tools that give a trustee the authority to manage assets for you and your beneficiaries while you’re alive. A living trust usually holds investments like stocks, bonds, cryptocurrencies, and certain bank accounts, as well as real estate, personal property, and some types of real estate. You can even title mineral rights or a membership interest in an LLC into a living trust.
You might not want to put these things in a living trust. Here’s why they might cause problems and what you could do with them instead.
You’re not the only one who doesn’t know if your checking and savings accounts should be in your living trust. This choice can be hard to make, but I’m here to make it easy for you. As someone who has helped a lot of people with estate planning, I can tell you the pros and cons and how to transfer those accounts if you decide it’s the right thing to do.
Why You Might Want to Add Bank Accounts to Your Trust
Let’s be real – nobody likes to think about death. But planning ahead saves your loved ones serious headaches. Here’s why your bank accounts might belong in your trust:
Avoiding Probate (The BIG Reason)
One of the biggest misconceptions people have is thinking that having a will means their stuff transfers quickly to their heirs NOPE! Whether you have a will or not, your assets typically go through probate when you die.
Probate is that annoying court process that:
- Can take months (or even years for complex estates)
- Costs money in legal fees and court costs
- Is public record (so anyone can see your business)
- Delays your family’s access to funds they might need
When you put bank accounts in a trust, they don’t go through probate at all. Instead, your successor trustee can give the money out as you told them to without any help from the court.
Protection During Incapacity
What happens if you get sick or injured and can’t manage your finances? Unlike a will (which only works after you’re gone), a trust is active the moment you create it.
If you become incapacitated your successor trustee can immediately step in to manage your trust’s bank accounts. Without this your family might need to pursue a costly court process called conservatorship to access your accounts and pay your bills.
Control & Protection
When you place accounts in a trust, your successor trustee has a legal, fiduciary duty to manage those funds responsibly for your benefit. This provides a safeguard against mismanagement that you don’t get when you just add someone as a joint owner on an account.
How Trust Ownership Affects Your Bank Accounts
The good news is that putting your bank accounts in a trust won’t change how you use them every day!
You Still Control Your Money
As trustee of your own revocable living trust, your banking routines stay the same:
- You can still write checks
- Use your debit card
- Make deposits and withdrawals
- Continue direct deposits
- Keep automatic bill payments running
The only difference is that the account title changes from “Jane Doe” to something like “Jane Doe, Trustee of the Jane Doe Revocable Trust.”
FDIC Insurance Still Applies
Worried about FDIC protection? Don’t be! Funds in a revocable trust are still insured by the FDIC.
According to rules effective April 2024, deposits in a trust are insured up to $250,000 per beneficiary for up to five beneficiaries. This means you could have up to $1,250,000 of coverage per owner, per bank. Not too shabby!
Alternatives to Consider
While a trust is awesome, it’s not the only way to handle bank accounts in your estate plan. Let’s look at alternatives:
Payable-on-Death (POD) Designations
This is a simple arrangement with your bank that names a beneficiary for your account. During your lifetime, you keep total control, and your named beneficiary can’t touch the money. When you die, they just show a death certificate to the bank and get the funds – no probate needed!
Pros of POD:
- Easy to set up
- Less expensive than creating a trust
- Avoids probate
Cons of POD:
- Offers zero protection if you become incapacitated
- Less flexibility than a trust
- Limited to just naming primary and secondary beneficiaries
- No detailed instructions possible
Joint Accounts with Rights of Survivorship
Another option is adding a co-owner to your account. When one owner dies, the surviving owner automatically gets everything without probate.
Pros:
- Convenient, especially for spouses
- No probate
- Immediate access to funds
Cons:
- Major risk! The co-owner can take ALL the money anytime
- Your funds become subject to their debts and creditors
- Possible exposure to lawsuits or bankruptcy if they have financial troubles
- Complete loss of control over who eventually inherits the money
What Accounts Should NOT Go in Your Trust
Not every bank account belongs in your trust. Here’s what to keep out:
Active Bill-Paying Accounts
For most people, it’s simpler to keep your everyday checking account (the one you use to pay monthly bills) outside your trust. If you’re the trustee with full control, you could include it, but many folks find it easier to keep these working accounts separate.
Don’t worry about probate for these accounts – just add POD beneficiaries so they transfer directly to your heirs when you pass.
Low-Value Accounts
If you have small accounts, they might not be worth the paperwork to transfer to your trust. In California, for example, you can hold up to $166,250 in assets outside a trust and still avoid probate. Check your state’s limits!
How to Transfer Bank Accounts to Your Trust
Ready to make the move? Here’s the step-by-step process:
1. Contact Your Bank
Each financial institution has its own requirements. Call or visit your bank and ask what they need to transfer your account to your trust.
You might need to write a Letter of Instruction that includes:
- Your account number
- The name of your trust
- Your Social Security number
- Contact information
2. Complete the Certificate of Trust
Banks will typically ask for a Certificate of Trust – a short document that provides basic info about your trust without revealing all the private details. This document typically includes:
- The name of your trust
- Your Social Security or Tax ID number
- Names of current trustees
Some banks might want to see the first and last pages of your trust document to verify it’s legit and was properly notarized.
3. Let the Bank Finalize the Change
Once you’ve submitted all required paperwork, the bank will process the ownership change. Your statements will now show the trust name instead of your individual name.
Good news – most banks can keep your same account numbers. However, some might require new ones for trust-owned accounts.
Real-World Considerations I’ve Seen With Clients
As someone who’s helped clients with this process, here are some practical things to consider:
The Cost Factor
Yes, creating a trust costs more upfront than just having a will. My clients typically pay more in attorney fees for a trust-based estate plan. But those costs are usually offset by:
- Avoiding probate fees later
- Saving on legal costs for your heirs
- Preventing appraisal fees
- Reducing other estate settlement expenses
Think About Your Family’s Immediate Needs
When someone dies, families often need quick access to cash for funeral expenses, outstanding bills, and other immediate costs. Having at least some accounts that transfer immediately (either through the trust or POD designations) is crucial.
One client of mine kept one checking account outside her trust with a POD designation to her daughter specifically to cover funeral costs. This worked perfectly when she passed – her daughter had immediate access to funds while the trust administration process began.
My Final Thoughts
So should YOU put your bank accounts in your living trust? In my experience, it makes sense for most people to include their major savings and investment accounts in their trust, while potentially keeping everyday spending accounts separate with POD designations.
The right choice depends on:
- The size of your estate
- Your state’s probate laws
- Your personal financial situation
- How many accounts you manage
- Your family dynamics
Remember, estate planning isn’t one-size-fits-all! The best approach is talking with a qualified estate planning attorney who can look at your specific situation.
Have you already put some accounts in a trust? Or are you still considering it? I’d love to hear about your experiences in the comments!
Disclaimer: This article provides general information and isn’t legal advice. Estate laws vary by state, so please consult with a qualified attorney or financial advisor before making decisions about your estate plan.
Why not put a checking account in a living trust
You could put a checking account in a living trust, but it can be pricey to set up a trust just to move checking account assets, especially if your checking account is the main thing you own.
Instead: Ask your bank to make your checking account payable on death (POD). POD-designated accounts bypass probate and you designate specific beneficiaries to receive the account’s assets when you die. If you have a joint checking account, the bank may need the other account holder’s signature.
What assets should you not put in a living trust?
Vehicles under a certain value can bypass probate in some states, making a living trust unnecessary to transfer them to an heir. For that matter, taking the car out of the trust can be hard if you want to sell it.
Instead: A high-value collectible car that you think will increase in value may actually be a good fit for a living trust, but for a regular vehicle, register it with a transfer-on-death (TOD) deed. That way, it can go directly to a beneficiary without going through probate.
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Transferring Bank Accounts Into Your Living Trust
FAQ
Should I put my bank accounts in a trust?
Putting a bank account in a trust is a vital part of making sure your estate plan works the way you intend, helping your loved ones avoid probate delays and unnecessary expenses.
What should not be in a living trust?
You generally should not put retirement accounts (IRAs, 401(k)s), health savings accounts (HSAs), active bank accounts, life insurance policies, or vehicles into a living trust, as this can trigger taxes, forfeit tax benefits, or complicate asset management.
What does Dave Ramsey say about trusts?
Dave Ramsey suggests that a trust is unnecessary for the average person with a simple, straightforward financial situation, as its costs and complexities often outweigh the benefits. He says that a will is enough for most people, but a trust can be helpful for people with large or complicated estates, specific estate planning goals, or unusual situations like needing to provide for a dependent with special needs.
What is the downside of putting assets in a trust?
The primary downsides of putting assets in a trust are upfront costs, increased complexity, potential difficulties when refinancing or selling assets, the need for proper and timely funding of the trust, and the potential loss of direct control over those assets.
Should I put my bank accounts in a living trust?
Avoids Probate: Probate is a lengthy and costly legal process that can tie up your assets for months or even years. By placing your bank accounts in a living trust, you can bypass probate and ensure your beneficiaries have immediate access to the funds. Protects Your Assets: A living trust can shield your assets from creditors and lawsuits.
Should you add a bank account to a trust?
Understand the practical effects of adding a bank account to a trust, from daily control to probate avoidance, and see how it compares to other options. A living trust is a legal document that holds your assets and has a trustee to take care of them for your beneficiaries.
Can a living trust be a beneficiary?
You can name the living trust as the beneficiary if you wish. You may hold stocks, bonds or other securities in an investment account at your bank. These are assets people often put in living trusts. Giving the form to your banker is all it takes to give the account to the trust.
Does a living trust have to go through probate?
Property you put in a living trust doesn’t have to go through probate, which means that the assets won’t get tied up in court for months and maybe years. However, you don’t have to put bank accounts in a living trust, and sometimes it’s not a good idea. There are other ways to pass on ownership without the hassle of probate.
Can a bank account be transferred into a trust?
Transferring Bank Accounts into a Trust Creating a revocable living trust gives you a legal document that will protect your property, including your bank accounts and any other assets in your estate. .
Should a bank account be owned by a trust?
Some of your financial assets need to be owned by your trust and others need to name your trust as the beneficiary. With your day-to-day checking and savings accounts, I always recommend that you own those accounts in the name of your trust. Can a bank account be in the name of a trust?