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

By Stephanie Kurose, J.D.

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

By Stephanie Kurose, J.D.

A living trust is an estate planning tool that allows a trust creator, or grantor, to transfer almost any asset into the trust during their lifetime. When the grantor dies, a trustee named by the grantor manages the trust on behalf of designated beneficiaries.

Man going over documents with pen

To transfer assets into a trust, the grantor must transfer titles from their name to the legal name of the trust. A grantor can create a living trust using an online legal document provider or by hiring an attorney. They can transfer almost any asset, including bank accounts, into a trust. There are many benefits of transferring assets into a living trust, both while the grantor is still alive and when they die.

No Need for Court Oversight

One of the best-known advantages of creating a living trust is that the assets in the trust avoid the probate process. Probate is the court process of collecting and distributing a person's estate upon their death. It is often lengthy and expensive, depending on the complexity of the estate.

By contrast, any asset owned by the trust, as well as any property outside the trust that has a beneficiary, avoids this process. The court automatically distributes these assets to the beneficiaries without court oversight based on the terms of the trust or the relevant legal document. Traditional bank accounts are subject to probate unless:

  • The grantor transfers the title from their name to the trust.
  • The account is jointly owned.
  • The account contains a payable-on-death provision.

Bank Accounts with Designated Beneficiaries

Payable-on-death accounts, or POD accounts, also avoid the probate process. POD accounts are bank accounts that have a named beneficiary who automatically receives the account's contents when the bank account owner dies. A grantor does not need to transfer the title on a POD account into a living trust in order to avoid probate because it already has a named beneficiary.

Responsibilities of a Trustee

With living trusts, the grantor and trustee are typically the same individual. In that case, the grantor must name a successor trustee to assume the responsibility of managing the trust when the grantor dies or no longer has the capacity to manage the trust.

In either of those cases, the successor trustee is responsible for managing any bank account titled to the trust. This individual is also in charge of transferring trust property to beneficiaries when the time comes.

Limitations to POD Accounts

Unlike a bank account in a living trust, a POD account does not have the benefit of having a trustee manage it upon the account holder's death. Instead, the named beneficiary automatically inherits the POD account's contents. By contrast, a grantor of a living trust can determine how and when a bank account owned by the trust is distributed to one or more beneficiaries. For example, a grantor can dictate that the trustee place certain restrictions on the distribution of an account, such as barring distribution to a certain beneficiary until they reach a certain age. A POD account does not allow the account owner to place any restrictions on its distribution.

There are many benefits of transferring title of a bank account into a living trust. It gives the grantor much more decision-making authority as to what happens to the account when they die.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.