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

By Tom Streissguth

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.

Naming Beneficiaries

It is possible to name a beneficiary for your bank accounts, including checking and savings accounts as well as certificate of deposits and money market accounts. The beneficiary can be an individual or a revocable trust, meaning a trust that you as the grantor can change or revoke. The point of doing so would be to give the beneficiary clear legal title to the assets, without the complications of probate or the delay involved in inheriting through a will.

Retitling Accounts

An alternative to designating a beneficiary would be simply retitling the bank account, or making it a joint account. By doing this, the new account owner or co-owner has immediate access to the funds and inherits the entire account on the death of the original owner. In some states, there are some tax advantages to retitling accounts. Pennsylvania, for example, levies an inheritance tax on only half the assets if the account is more than a year old and the co-owner is a parent or child. However, there is no inheritance tax savings with a revocable trust.

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Control of Assets

If you make a revocable trust the beneficiary of a bank account, you allow the trust to inherit the assets in the account directly. If you retitle the account in the name of a trust, then you allow the trustee -- who can be a relative, a friend, an attorney or yourself -- direct control over deposits and withdrawals, subject to the directions set down in the trust document. You would still have control over the assets as the trust grantor, who has the right to change the terms at any time, appoint a new trustee, add or remove beneficiaries, or place new assets into the trust.

Payable on Death

A payable on death or POD account accomplishes the same probate avoidance as a beneficiary designation. The POD account -- also known as a transfer on death account -- goes directly to the individual or group named as the beneficiary. This trumps any instructions that you may have included in your will. The POD account has an important limitation: It does not allow you to name an alternate beneficiary. With an ordinary bank account retitled to a revocable trust, you can select a second beneficiary to receive the account in case the first is not alive when you pass away.

Retitling and Insurance

You can retitle a bank account simply by filling out paperwork with the bank renaming the account. The new title indicates that a named trustee now holds the account under the trust name, such as the "Bob Jones Revocable Trust." Check the bank's policies carefully; in the case of certificate of deposit accounts, the bank may consider a retitling as a withdrawal, and levy early-withdrawal fees as a result. Accounts held by a trust are entitled to $250,000 of coverage from the Federal Deposit Insurance Corporation, in the case of a bank failure, for each beneficiary who has the right to inherit the assets on the passing of the trust owner.

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

References

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What Is the Law for Beneficiary Designation for Bank Accounts?

Planning for distribution of your assets after your death can be a complex and confusing process. Naming beneficiaries for each of your bank accounts is perhaps the simplest, and most important, step you can take to protect your assets and ensure they are passed properly to the intended recipients following your death.

Can an Estate Be a Named Beneficiary?

You can opt to have your estate receive an account that requires a beneficiary designation. A beneficiary designation simply means that you provide written instructions to the account administrator as to who will get the money from that asset when you die. The kinds of accounts that usually require beneficiary designations are life insurance policies, IRAs, pensions and other retirement accounts. A variety of beneficiaries exist that you can name: an individual, charity, trust or your estate. If the estate is the named beneficiary, the asset must go through the probate process. If the beneficiary is an individual, charity or trust, the funds are typically released directly to the named beneficiary and do not pass through probate.

How to Close Bank Accounts for the Deceased Without a Will or Probate

You don't need wills or probate courts to close certain types of bank accounts when original title owners die. You can close joint accounts when your co-owner dies by simply presenting the bank with your driver’s license or other official identification. Accounts titled in trusts are closed by successor trustees when the original trustees die. A payable-on-death or POD account is closed by the account’s named beneficiary upon presentation of the original owner’s death certificate.

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