Having all of your assets appropriately funded into your living trust is one of the most crucial things you can do to ensure that, in the event that it becomes necessary, your plan operates as intended. And I Mean Everything.
Your trust must be the owner of some of your financial assets and the beneficiary of others. I always advise you to hold your daily checking and savings accounts in the name of a trustworthy party. Please contact our office at (480) 418-8448 if you have any questions about your situation, such as which accounts should be a beneficiary and which should be owned by the trust.
A revocable living trust is a powerful tool for protecting your assets and ensuring they are distributed according to your wishes after your death. However, one common question arises: should you include your bank accounts in your living trust?
This article delves into the intricacies of this decision, providing you with the necessary information to make an informed choice.
Benefits of Placing Bank Accounts in a Living Trust
- Avoids Probate: Probate is a lengthy and costly legal process that can tie up your assets for months or even years. By placing your bank accounts in a living trust, you can bypass probate and ensure your beneficiaries have immediate access to the funds.
- Protects Your Assets: A living trust can shield your assets from creditors and lawsuits. This is especially important for individuals with significant assets or those who are concerned about potential financial risks.
- Maintains Control: As the grantor of the trust, you retain complete control over your bank accounts during your lifetime. You can make deposits, withdrawals, and other transactions as usual.
- Ensures Your Wishes Are Followed: Your living trust allows you to specify how your assets should be distributed after your death. This ensures that your beneficiaries receive the funds according to your wishes, even if you become incapacitated.
Considerations Before Adding Bank Accounts to a Living Trust
- Tax Implications: In some cases, placing your bank accounts in a living trust may have tax implications. It’s crucial to consult with a tax advisor to understand the potential tax consequences.
- Accessibility: If you need regular access to your bank accounts, keeping them outside the trust might be more convenient. However, you can still designate beneficiaries for these accounts to ensure smooth transfer after your death.
- Cost: Creating and maintaining a living trust can involve some costs, including attorney fees and administrative expenses. Weigh the costs against the benefits before making a decision.
Assets Not Suitable for Living Trusts
While living trusts offer numerous advantages, certain assets should not be included. These include:
- Retirement accounts: Placing retirement accounts like 401(k)s and IRAs in a living trust can trigger tax penalties and complications. Instead, designate beneficiaries directly on these accounts.
- Health savings accounts: These accounts already offer tax advantages and cannot be transferred to a living trust. You can, however, designate beneficiaries to ensure the funds are accessible after your death.
- Vehicles: Vehicles typically do not go through probate and are not considered significant assets. Additionally, some states impose taxes when vehicles are retitled, making it less advantageous to include them in a living trust.
Ultimately, the decision of whether to include your bank accounts in a living trust depends on your individual circumstances and financial goals. Carefully consider the benefits and drawbacks, consult with financial and legal professionals, and choose the option that best aligns with your estate planning objectives.
Frequently Asked Questions
Q: What happens to my bank accounts if I don’t put them in a living trust?
A: If you don’t include your bank accounts in a living trust, they will go through the probate process after your death. This can be a lengthy and costly process, and your beneficiaries may not have immediate access to the funds.
Q: Can I change my mind and remove my bank accounts from the living trust later?
A: Yes, you can modify or revoke your living trust at any time while you are still mentally competent. This allows you to adjust your estate plan as your circumstances change.
Q: What are the costs involved in creating a living trust?
A: The costs of creating a living trust vary depending on the complexity of your estate and the attorney you choose. Generally, you can expect to pay between $1,000 and $3,000 for attorney fees.
Q: Do I need an attorney to create a living trust?
A: While it’s not legally required, it’s highly recommended to work with an attorney to ensure your living trust is properly drafted and meets your specific needs.
By understanding the advantages and disadvantages of placing your bank accounts in a living trust, you can make an informed decision that aligns with your estate planning goals and ensures your assets are distributed according to your wishes. Remember to consult with financial and legal professionals for personalized guidance and ensure your estate plan is tailored to your unique circumstances.
Top Three Reasons Your Trust Should Own Your Accounts
- That account will be frozen in the event that you or your spouse become incapable.
- If you pass away, that account can be frozen.
- If your accounts are in a person’s name, identity thieves will have an easier time using them to target vulnerable adults.
None of these things can occur if your trust owns your daily checking and savings accounts. For those who are incapable of suing, Arizona has some of the worst probate courts in the nation. All of your bank accounts and assets held in your name, if that were to occur, would most likely be frozen.
This implies that no member of your family may access them, and even in the event that you have a power of attorney, no bank in Arizona is required by law to abide by it. And if they don’t, your family will only be able to access your accounts in order to pay your bills by filing a lawsuit known as a conservatorship against you. This kind of litigation takes place in probate court and can run into thousands upon thousands of dollars just to cover your expenses.