Trust funding is KEY to ensuring your living trust based plan actually works. We have already posted about this in several posts. You can check out this post on “what is trust funding” and this post on “why it is so important.”
This post starts a few blog articles on specific types of assets that need to be funded properly. This particular post is about bank accounts.
How do we define a “bank account”? We are talking about a checking account, money market account, savings account. Any account at a traditional bank OR at an investment institution which is treated like a checking or savings account and contains cash only. Schwab and Fidelity come to mind as investment institutions where we see a number of “bank accounts” that are used like a checking account or savings account and hold only cash. American Express also has a number of these types of accounts.
What do you do with a bank account in terms of funding? Before I share, I must say that this is very specific to you and your family. So definitely work with your estate planning attorney to ensure that your bank accounts are funded the way you need them to be funded.
There are general rules, however, that we can share.
- Most bank accounts should change ownership. What we mean is that the ownership of the account should change from a person or persons to a trustee or trustees.
- Ex. Amy Refeca (bank account owner) should be changed to Amy Refeca, Trustee, of the Amy Refeca Living Trust.
- We understand that sometimes there are two owners on a bank account. This can be tricky if both persons are not involved in the trust planning. So talk to your attorney about this situation. But if both owners of the bank account are also both in the trust (like many married couples we work with) then you should still change ownership.
- Ex. Amy Refeca and Roberto Refeca are joint owners of bank account. This should be changed to Amy Refeca and Roberto Refeca, as Trustees, of the Refeca Family Living Trust.
- If for whatever reason you cannot change the ownership to the trust or choose not to (of course after talking with your attorney), you should, at a minimum, ensure that there is a transfer on death (TOD) or payable on death (POD) designation on the account to make sure that at death of the last owner, the account goes into the trust.
There are a lot of “what ifs” that can pop up and we work with our clients on a lot of unique scenarios. But these are some good rules to live by in terms of bank accounts and funding your trust.
So steps you can take right now to see if your bank accounts are funded into your trust:
- Go into each bank account online (or go into the bank) and check to see who is the owner of the account. If your trust isn’t mentioned anywhere, your account is likely not funded.
- Go into each bank account online (or go into the bank) and check to see if there is a transfer on death or payable on death designation. If nothing is there AND your account is not funded, make sure that there is a TOD or POD designation right away!
- Check each institution and each account!
This article is not meant to be legal advise to you. You should always seek the legal advise of an attorney in your community to ensure that your unique legal concerns and situation are properly addressed.