The Financial Account You Should Avoid Placing In A Trust

Whether passing down millions of dollars or something as simple as a family property, creating a trust is often an essential part of the estate planning process. Besides keeping control over your assets, it will also benefit your family and beneficiaries in the long run by keeping them out of probate and could keep heirs from owing from inheritance taxes. However, not every financial account should be placed in a trust. According to Kiplinger, grantors creating a trust should look to keep their active financial accounts such as a checking or standard savings accounts out of their revocable living trust. In fact, alongside a vehicle, it can be one of the worst assets to add to a trust.

Even if you keep a well-padded checking and savings account with several months of living expenses, leaving it out of your trust may be the better option. Firstly, adding a checking account creates unnecessary challenges for the creator of the trust. By placing the account inside of a trust, ownership transfers from the individual to the trust itself, and this would make it inaccessible if the owner needs to withdraw money to pay bills. This method can also create difficulty for trustees trying to access the account at a later day. Instead of placing an active account in a trust there is a much simpler way to pass down this money without unnecessary headaches.

Instead of adding active financial accounts to a trust, individuals creating one should consider using a payable-on-death (POD) designation or a joint owner with a right of survivorship to their bank accounts. A POD designation can be added at the account owner's bank and it simply specifies who receives your account funds upon death. This option, however, is limited to primary and secondary beneficiaries. This means there would be no back up plan if the beneficiaries died before the account is transferred to the owner, sending the assets to probate.

Adding a joint owner with a right of survivorship, often referred to as a joint tenancy, is another option to pass down an active bank account. This is similar to a POD designation, granting beneficiaries immediate access upon the account holder's death. However, while the account holder is still alive, a joint owner can use the account to pay bills and make deposits and withdrawals, This can come in handy if the account owner is incapacitated. Using a joint tenancy will override a will, but may be subject to inheritance or gift tax implications if the beneficiary is someone other than a spouse and the amount is greater than $19,000 per recipient.