Do Bank Accounts Have to Be Included in 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.

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.

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.

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.