Can You Put Bank Accounts in a Trust?

A trust is a legal arrangement for managing and distributing assets. Many individuals use trusts for financial and estate planning, often considering including bank accounts. This article explores the foundational concepts of trust-owned accounts, their motivations, funding steps, and ongoing administration.

Foundational Concepts for Trust-Owned Accounts

A trust establishes a fiduciary relationship where a trustee holds assets for designated beneficiaries. The individual creating the trust is the grantor. The trustee, an individual or institution, manages the trust’s assets according to the grantor’s terms. Beneficiaries are those who receive benefits from the trust.

When a bank account is held in a trust, its legal title shifts from the individual grantor to the trust itself. The account is then held in the trust’s name, such as “The [Trust Name] Trust, [Trustee Name(s)] Trustee(s).” This change in ownership is a fundamental aspect of trust funding.

Trusts fall into two main categories: revocable and irrevocable. A revocable trust allows the grantor to modify or dissolve it during their lifetime, maintaining control over assets. An irrevocable trust cannot be altered or revoked once established, meaning the grantor relinquishes control. Checking, savings, money market accounts, and Certificates of Deposit (CDs) can be placed into either type of trust.

Key Motivations for Using a Trust for Bank Accounts

Placing bank accounts into a trust is driven by specific estate planning goals. A significant motivation is avoiding probate, the legal process of validating a will and distributing assets. Assets held in a living trust bypass probate, allowing for a quicker and more private transfer of funds to beneficiaries. This streamlined process saves time and reduces court fees.

Another reason is to maintain privacy regarding financial affairs. Since probate is public record, assets passing through a will become publicly accessible. Funds held within a trust are not subject to public scrutiny, offering confidentiality for the grantor and beneficiaries.

A trust provides precise control over fund distribution. The grantor can specify how and when bank account assets are distributed to beneficiaries, even imposing conditions or staggered distributions beyond their lifetime. This control surpasses what a simple will offers.

Trusts are valuable tools for incapacity planning. If the grantor becomes unable to manage financial affairs due to illness or accident, a successor trustee can immediately manage the trust-owned bank accounts. This avoids a lengthy, public court-appointed conservatorship or guardianship.

Steps to Fund Bank Accounts into a Trust

Funding bank accounts into a trust involves preparatory work and procedural actions with your financial institution. The initial phase focuses on gathering necessary documents and understanding bank requirements. You will need your executed trust agreement and any amendments, which outline the trust’s terms. A certification of trust, a condensed version, is often sufficient for banks, providing essential details without sensitive information.

Before proceeding, contact your bank or credit union to ascertain their requirements for titling accounts in a trust. Requirements vary significantly among financial institutions. Also, compile all relevant details for the bank accounts you intend to transfer, including account numbers and current titling information.

Procedural actions involve engaging with your bank to formalize ownership transfer or open new trust accounts. This typically requires an in-person visit, though some banks offer online or mail-in options. The bank provides forms for changing account ownership or opening new accounts in the trust’s name. These forms request the trust’s full legal name, trustee names, and the trust’s tax identification number (TIN).

For revocable trusts, the grantor’s Social Security Number (SSN) is often used as the trust’s TIN while the grantor is alive. For irrevocable trusts, or upon the grantor’s death for a revocable trust, a separate Employer Identification Number (EIN) from the IRS is required. All trustees will need to sign bank forms, and personal identification, such as a driver’s license, is required for verification. After these steps, ensure you receive confirmation that accounts have been re-titled or opened in the trust’s name.

Administering Bank Accounts Held in a Trust

Once bank accounts are funded into a trust, the trustee assumes ongoing management responsibilities. The trustee must manage funds according to the trust’s terms, acting in the beneficiaries’ best interests. This includes making specified distributions, safeguarding assets, and maintaining financial records.

Federal Deposit Insurance Corporation (FDIC) insurance coverage is a significant consideration for trust-owned bank accounts. As of April 1, 2024, FDIC rules for trust accounts treat revocable and irrevocable trusts similarly. Trust deposits are insured up to $250,000 per eligible beneficiary, per insured bank, with a maximum of $1,250,000 for trusts with five or more beneficiaries. If a trust has multiple owners, this limit is multiplied by the number of owners.

The trustee has primary access to trust account funds and is responsible for handling all transactions, including deposits, withdrawals, and bill payments. All transactions must align with the trust’s provisions and the trustee’s fiduciary duties.

Maintaining comprehensive records for all trust-related bank transactions is important. This includes bank statements, income and expense records, and details of all distributions to beneficiaries. These records are essential for transparency, reporting, and fulfilling tax obligations. While a revocable trust may use the grantor’s SSN, an irrevocable trust requires its own EIN for tax reporting, and the trustee manages these filings.