Do Bank Accounts Have to Be Included in a Living Trust?

Not all bank accounts should go in a living trust.

Not all bank accounts should go in a living trust.

It’s never too soon to do a little estate planning, especially since it’s easy to set up a living trust. 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.

A Living Trust

Basically, all a living trust does is own things. You fund the trust by transferring ownership of some of your assets. The designation “living” just means you create the trust while you are alive. You or your spouse usually act as trustee, so you keep control of your property. A successor trustee takes over when you pass away, and ownership of the trust assets, including bank accounts, passes automatically to the beneficiary you’ve named. In addition, a living trust is revocable. This means that you can move assets in and out of the trust as necessary.

Trusts and Bank Accounts

Banks, along with credit unions and savings and loan associations, offer several types of accounts. You might have a checking account, savings account and a certificate of deposit. You can put any or all of these into a living trust. However, this isn’t necessary to avoid probate. Instead, you can name a payable-on-death beneficiary for bank accounts. Ownership then changes automatically when you pass away. You can name the living trust as the beneficiary if you wish.

Investment Accounts

You may hold stocks, bonds or other securities in an investment account at your bank. These are assets people often put in living trusts. All you do is fill out a form assigning the account to the trust and give it to your banker. You can also set up investment bank accounts on a payable-on-death basis with a person or the living trust named as the beneficiary.

Retirement Accounts

You cannot place a bank account into a living trust if it’s set up as a traditional or Roth individual retirement account, a 401(k) account or some other type of tax-advantaged retirement plan. Under Internal Revenue Service rules, retirement accounts can only be owned by individuals, not by a legal arrangement such as a trust. Instead, name a payable-on-death beneficiary for such accounts. You can make the living trust a contingent beneficiary in the event the intended beneficiary can’t accept the money for some reason.

 

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