If you have a living trust, you should retitle any sizable checking account to yourself as trustee of the trust. However, you need not change any small joint or other checking accounts used primarily for household expenses.
Regarding a sizable checking account, if you fail to put it in the trust it could wind up in probate. A main reason for having a living trust is to avoid probate. But that only happens if you transfer your money and property to the trust.
Some of your financial assets need to be owned by your trust and others need to name your trust as the beneficiary. For example, sometimes your living trust should be the beneficiary of your retirement account or life insurance. There is no hard and fast rule for this. If you have questions about your situation, please call our office at 602-443-4888.
Will You Need to Open New Account As Trustee for Bank Account?
Sometimes yes, sometimes no. Some banks require you to open a new account in the name of your living trust. Other banks will let you keep your current account and simply change the account to show that you are now trustee for the bank account.
Should You Put the Trust Name On Checks?
Typically, yes. The name of your trust will be on your checks. However, you can continue to sign your checks with just your name. You don’t need to sign as trustee for the bank account.
Why Not Put Your Checking Account In Trust?
If it’s small joint or other checking accounts used primarily for household expenses. But if it’s a more sizable checking account, you should sign new signature and ownership cards to retitle it to name yourself as Trustee of the account.
Regarding larger checking accounts, here are four reasons you SHOULD put your checking account in trust:
If you become incapacitated, the bank will freeze that account.
It’s common for an older person to become incapacitated at some point. For example, you could get dementia or Alzheimers. Or you could simply get old and unable to manage your financial affairs.
If your bank suspects that you have become incapacitated, it will freeze accounts in your personal name. It does that to protect you. But, that also means no one can access your accounts without a court order. At that point, someone needs to file a lawsuit seeking to become conservator for you. That takes time. It’s expensive. It’s public. And now it means you are in the court system. (Remember Britney Spears?) That’s a big reason to have your bank accounts in your living trust.
Accounts in your personal name are easier targets for identity theft.
This is related to the previous point. If you become incapacitated, someone may want to get access to your accounts. Maybe they are trying to help you. Maybe they want to take advantage of you. But if no one has access to your accounts when you become incapacitated, things can go wrong. Someone can forge your signature on your checks. They can use your bank debit cards. And there is nothing stopping the person from mismanaging your money. You could avoid this danger by having your bank accounts in your living trust.
If you die, the bank will freeze that account.
If the bank finds out that you have died, it will freeze your accounts. At that point, there are two main ways someone can access your money. First, they can use an Affidavit for Collection of All Personal Property. The problem is this. Anyone can use that form to get access to your accounts. Of course, they are not “supposed to.” They might be lying when they say they are entitled to your account. But that doesn’t stop someone from doing it.
Or someone will need to file for a probate. A probate typically takes about six months. It is expensive and public. And you could avoid this by putting your bank accounts in a trust.
If you die or become incapacitated, the account may go to the wrong person.
It is common for people to name a pay-on-death beneficiary for their bank account. Yes, that can avoid probate. But it also means that the named person is entitled to keep 100% of the money in the account. They have no legal obligation to use it for your funeral. They have no obligation to share it with anyone else.
If you put someone on as joint owner of your account, it’s the same thing. If you become incapacitated or die, the joint owner can take the money in the account. They have no obligation to use it for your care.
The bank may not recognize a power of attorney
Here in Arizona, there is no law that requires a banks to honor a power of attorney. And if they don’t, the only way for your family to get access to your accounts to pay your bills is to file a lawsuit. against you called a conservatorship. This is a type of lawsuit that happens in probate court. It can cost you thousands of dollars.
Also, a power of attorney is only valid while you are alive. Once you die, it no longer works. Then your loved ones are stuck going to probate court.
The Only Way To Avoid Conservatorship Is To Put Your Bank Accounts In Trust
We commonly have a client say, “Well, I put my son or daughter on the account. That should be OK, right?”
If you add someone as a joint owner to your bank accounts, and that person has no obligation to use the money for your benefit. They could use it on vacations. They could use it to buy a new car. And what happens if they get a divorce? Could some of your money go to someone else in that divorce? What if your son or daughter gets in a car accident? Where is your money get used to pay for the accident?
If the joint owner on your account has to file bankruptcy, your account is now involved in their bankruptcy.
And it gets worse. If one of your family members discovers that your bank account is being miss used, they have to go to court to fix it. Now you’re involved in a conservatorship action. (Again, think Brittany Spears.)
Having your bank accounts in your living trust is kind of like using a seatbelt. Yes, using a seatbelt can be annoying sometimes. But it’s also the best way to protect you. If something goes wrong. And sure you can drive around without a seatbelt for years with no problem. But all it takes is one time for things to go horribly wrong. The same is true if you don’t have your personal bank accounts in your living trust.
When your trust owns your accounts, you are the one with the authority to write checks and pay bills while you are well. If you should become incapacitated, your trust gives your successor trustee immediate access to write checks if and when she needs to. Banks will honor your wishes when a trust is used this way.
Still wondering why not put your checking account in trust? Let’s talk about your particular situation. If you would like to talk about setting up a trust for yourself or a loved one, please call our office at 602-443-4888 and we will be happy to schedule an appointment.