Transferring a Certificate of Deposit in a Trust

An attorney can help you transfer a CD to a trust account.
i Stockbyte/Stockbyte/Getty Images

Assets transferred to a trust are usually cash and cash equivalents, such as a certificate of deposit, or CD. If you and your spouse are considering the addition of a certificate of deposit to a trust account, consult with an attorney or other fiduciary service. They can assist you with the transfer and the subsequent accounting and reporting for the trust. Transferring assets to a trust helps protect your assets and any beneficiaries entitled to those assets.

CD in a Trust

A trust asset can be any negotiable instrument, such as a CD, even if it does not represent funds yet acquired. In cases where funds have not been collected, withdrawals on these deposited items are placed on hold until the funds are collected or available. For funds deposited into a CD transferred to a trust, use of the funds would require the CD to be cashed out or a suspension on the use of the funds until the instrument’s maturity date.

Trust Asset Protection

A trust can be used to protect your assets and the beneficiaries who are to receive those assets. For a CD held to maturity, the trust protects the investment’s principal and the full amount of interest earned. If the CD is cashed out immediately upon transfer to the trust, the funds in the trust consist of the investment’s principal, the interest earned up to the point of withdrawal, less any penalty charges for early withdrawal.

Trust Recordkeeping

For a CD held to maturity and transferred to a trust, the attorney or other authorized individual maintaining the account will record the CD’s principal amount and the periodic interest payments earned on the principal. No disbursements are allowed out of these funds since the principal and interest earned are not available until the CD’s maturity date. The trust funds from a CD that was cashed out are similar to a deposit of cash and are available for disbursement immediately. These funds can earn some of the interest lost due to the early cash out through the trust account, which is typically an interest-bearing account.

Trust Reports

A trust requires regular reporting and annual financial statements that detail the trust’s assets, liabilities, revenues, and expenses. The attorney who manages your trust account can provide periodic reports on interest earned throughout the period. If the CD was cashed out, these funds can show transactions related to earned interest and withdrawals to pay for trust expenses and other disbursements. These reports can also provide you with trust information related to the CD that needs to be disclosed on your tax return.

the nest