I worked with a fantastic client this month on a living trust for her and her husband. They have a trust structure which allows the surviving spouse to retain full control of all assets after the first death to keep things very simple, which was their preference.
The clients have several joint bank accounts and asked me a great question shortly before signing their trust:
“Why not just keep the bank accounts in our individual name(s) during our lifetime and make the trust the beneficiary to receive those assets after we are both gone? What is the benefit of having the trust own the bank accounts now?”
"Whenever possible, I recommend re-titling the larger bank account(s) into the trust. Reason being, that way you can see it’s actually in the trust, versus relying on beneficiary designations which you cannot physically see on the face of the account. That being said, for practical reasons sometimes it’s easier to leave it titled as it is and simply be sure the beneficiary is updated to your trust. It’s really a judgment call.
One other factor is that it's almost always easier for successor trustees to access your trust money (for you or your loved ones) during your lifetime if you become incapacitated, versus having to rely on the power of attorney if the account is left in your individual name(s)."
I’m all for simple and doing what makes sense for each of my clients on an individual, case-by-case basis. Bank accounts, like most other financial assets, have a feature that allows you to designate one or more beneficiaries to receive the asset upon the account owner’s passing. All that is typically required is a certified copy of death and completing some fairly simple paperwork. We therefore need to decide the best course of action for each account. My above answer to my client addressed several important factors to consider.
Factors to Consider
For smaller bank accounts, or ones you don’t necessarily plan on keeping for very long, simply making a beneficiary your trust is a very reasonable option that many of my clients choose to do.
For larger, more permanent accounts, taking the added step of re-titling them in the name of your trust makes great sense from an estate planning perspective, for a couple of reasons:
It's Easier to Access Trust Money Should You Become Incapacitated
First, it makes things easier in the event of your incapacity. Why? Because financial institutions are typically much more willing and comfortable in dealing with a successor trustee (legal owner) of an asset as opposed to someone named in a power of attorney and therefore acting on behalf of the principal. Think about it, if you were a bank, would you be more comfortable dealing with:
(A) somebody who is the legal owner of an account, or
(B) someone who is acting on behalf of an owner as his or her agent?
Of course, the answer is you would be more comfortable in dealing with the actual owner. That is likely one of the reasons why some financial institutions will refuse to honor a power of attorney that is past a certain number of years old.
Seeing Is Believing
The second reason I like to see the larger, more "permanent" accounts in the trust is that, when a bank account is inside a trust (titled in the name of a current trustee) it is immediately evident on its face as being a trust asset. That means, down the line no one has to wonder and verify with the financial institution what is to happen with that asset following the account owner’s death, lending greater certainty to those affected (such as trustees and beneficiaries).
For more information about living trusts, including how to transfer assets to a trust, feel free to review this page on our website. You will see there is an extensive list of frequently asked questions towards the bottom of that page.