The Advantages of Changing a Bank Account Title to a Living Trust

By Vanessa Padgalskas

A living trust, which is created during the grantor's lifetime, is an estate planning tool used as a holding area for many types of property, including bank accounts, real property and personal property. The grantor, the legal term for the person who creates the trust, can set up his own trust using an online legal document provider or he can hire an attorney to set up the trust. Retitling property in the trust's name, which is known as funding a trust, is a necessary step in creating a functioning trust. A bank account titled to a trust has benefits during the grantor's life and at his death.

Avoiding Probate

One of the main benefits of forming a living trust is avoiding probate. Probate is the process through which the debts and assets of a deceased person are collected and property is distributed to heirs or beneficiaries. Probate can be a long and expensive process depending on the complexity of a person's estate. Property that is titled to a living trust or property that has a beneficiary, such as a retirement account or life insurance, usually is not subject to probate. Most other property must go through probate, unless it is owned jointly with right or survival, meaning the property automatically belongs to the survivor when a co-owner dies. Traditional bank accounts must go through probate unless the account is titled in the name of a living trust, jointly owned or has a payable on death designation.

POD Accounts

A bank account that is payable on death means the bank account has a named beneficiary who automatically inherits the bank account upon the death of the bank account owner. A POD account is similar to a living trust in that a POD account avoids probate. One benefit of a POD account is that the POD account does not need to be retitled in the name of a living trust. If you do not have additional assets to place in a trust, setting up a POD account may be a less expensive alternative to creating a living trust. A POD account can be set up at any bank as long as you request this type of account. A traditional bank account is not a POD account. When you fill out the paperwork, write the name of the primary beneficiary to inherit the account and a secondary beneficiary in case the primary beneficiary dies before you do.

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Trustee Management

If the grantor becomes ill or incapacitated, the trustee or successor trustee of the grantor's living trust will manage the trust and the property in it. A grantor typically nominates himself as trustee during his lifetime, but a successor trustee will assume the role of the trustee if the grantor is no longer able to perform the trustee's duties. A trustee can manage the grantor's bank account titled to the trust. A POD account owner does not have this benefit if the account is not titled to a trust.


Unlike in a POD account, a grantor of a living trust can control how a bank account titled to his trust is distributed to one or more beneficiaries. For example, a grantor may require the trustee to distribute the bank account proceeds to three different beneficiaries rather than just one beneficiary. In addition, a grantor can place any restrictions on distribution of an account titled to his trust. For example, the grantor can stipulate that a bank account may not be distributed to the beneficiary until the beneficiary reaches 25 years old. A POD account does not allow the account owner to place restrictions on the distribution of the account.

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How to Transfer a Vanguard Account to a Living Trust


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How Much Money Do You Need to Start a Living Trust?

A living trust is used for estate planning and acts as a holding area for property. The person who creates the trust can retain control over his property in a revocable living trust. A trust can be created for many purposes, including caring for a child or elderly person or avoiding probate, which can be a lengthy process. The terms of the trust dictate when the trust beneficiaries receive the property in the trust. A living trust can be revocable, which means it can be amended or terminated by the person who created the trust, or irrevocable, which means it can be amended or terminated under limited circumstances, if at all. A grantor -- the person who creates a trust -- gives up all control over property in an irrevocable trust, whereas the grantor retains control over property in a revocable trust.

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Your irrevocable trust is a permanent agreement that describes how your trust assets are managed, identifies who receives the trust's contents and appoints someone to oversee the trust –– known as the "trustee". You can't directly transfer an IRA account to your trust during your lifetime, but you can name the irrevocable trust as the IRA's beneficiary when you die. In this way, the entire account balance that would normally pass to your beneficiaries as lump sum, and on which they would have to pay taxes, goes, instead, to the irrevocable trust. IRS rules allow the beneficiary to take minimal annual distributions from the trust. These distributions continue over the expected lifespan of the oldest beneficiary of your trust, thus lowering, and sometimes eliminating, taxes.

Can a Revocable Trust Be the Beneficiary of a Personal Bank Account?

Beneficiaries are those who inherit accounts or receive assets when you die. When you name a beneficiary, you give that individual or entity a legal claim that overrides anything you've set out in a will. You also allow the beneficiary to avoid the whims, costs and delays of a probate court proceeding. Beneficiary designations must be handled with care, and a regular review of who is supposed to get what, and when, is a smart financial play.


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