Advantages of Transferring a Bank Account Into a Living Trust

A living trust is a legally binding agreement between the person who creates the trust, the Grantor, and an individual or entity known as the Trustee. After the trust is created, the Grantor must transfer his or her assets into the trust.

Almost any asset can be transferred into a living trust, including a bank account. But, to do so, the Grantor must re-title ownership of that asset from his or her name to the name of the trust. The Trustee will then manage the trust assets for the benefit of designated individuals or entities known as the trust Beneficiaries.

In most cases, you will be both the Grantor and the Trustee of your living trust and must, therefore name a Successor Trustee to manage the trust and its assets when you die or become incapacitated. Your Successor Trustee will also be responsible for distributing income or assets from your trust to your Beneficiaries per the terms of your trust agreement.

Living Trusts and Probate Avoidance

A living trust provides its Grantor with many advantages, both during the Grantor’s lifetime and after he or she has died. Perhaps the biggest advantage that a living trust provides is probate avoidance.

Any assets held in the trust at the time of the Grantor’s death will bypass probate and transfer directly to his or her Beneficiaries. Probate is the court-directed process by which a deceased person’s estate is settled and its remaining assets are transferred to the decedent’s heirs.

Any assets that have not been transferred into your trust at the time of your death, unless otherwise provided for, will need to go through probate before ownership can be transferred to your heirs. Probate can be time-consuming and expensive and should be avoided wherever possible.

Bank Accounts and Living Trusts

Bank accounts and other Pay-On-Death (POD) accounts can avoid probate by allowing you to designate Beneficiaries who will inherit the account directly after you die. This can be a huge advantage if your loved ones need funds immediately after your death.

Since a bank account can avoid probate by way of a beneficiary designation, you do not have to transfer it into your living trust. But, if you do not transfer your bank account into your living trust, it will not be governed by the terms of your trust agreement, and you will be unable to dictate how its funds will be distributed. Furthermore, unless a court appoints a conservator over your estate, there may be no one to manage your bank account if you become incapacitated due to injury or illness.

On the other hand, if your bank account passes through your trust, rather than by beneficiary designation, you can place restrictions on how and when its funds will be distributed. This will allow you to protect the funds from being mismanaged by young or irresponsible beneficiaries. Also, your Successor Trustee can step in and manage the bank account whenever you are unable to manage it yourself, thereby avoiding the need for a conservatorship.

No such protections are afforded to bank accounts that transfer by POD designations. Therefore, one of the many advantages of transferring a bank account into a living trust is that it provides you with more options for the distribution of that account after you die.

Should You Transfer Your Bank Account Into Your Living Trust?

When it comes to bank accounts, you essentially have two choices. First, you can leave the title of the account as it is and designate the Successor Trustee of your living trust as the beneficiary of the account. This is the easiest choice and will not disrupt any auto-ACH transactions. However, periods of incapacity will need to be planned for by giving someone Power of Attorney to manage the account on your behalf while you are incapacitated. You will also need to furnish the bank with Power of Attorney to add this person to the account.

Alternatively, you can re-title your account into the name of your living trust. This will allow it to be managed more effectively if you become incapacitated and guarantee that the account will avoid probate. On the other hand, transferring your account into your living trust will require more work and may disrupt auto-ACH transactions, since it will require a new account number.

With that said, we recommend that our clients re-title all of their bank accounts into the name of their living trust. If you have an account from which you pay your bills and other day-to-day expenses, you can leave this account outside your trust and open another account in the name of the trust, to which you can transfer your auto-ACH transactions over time.

For more information about funding a living trust in Virginia, consult with a qualified and experienced Virginia estate planning attorney. Contact our law firm today at (703) 553-2577 or use the contact form on our website.

The information on this site is for general informational purposes only. The information presented in this site is not legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this site.