In our last post, we discussed the importance of trust funding, and how a properly funded trust can avoid probate and allow for the safe handling of your assets in the event of a mental disability. We will now take a look at funding specific assets, starting with bank accounts.
Bank accounts can be one of the easiest assets to fund in your Trust, but may also cause the greatest consternation. Funding your bank accounts into trust typically involves visiting the bank branch in question, providing a copy of your trust (or certification of trust), and completing any bank specific change paperwork.
Ownership to bank accounts are reflected on the bank account’s signature card. Therefore, funding your bank account into trust should be as easy as updating the signature card to reflect the Trustee’s signature (e.g. change signature card from John Smith to John Smith, Trustee). For some banks, funding an existing account into trust is that easy. Unfortunately for other banks, there are some additional wrinkles.
The bank may require that the account be closed, and reopened as a new account. This of course would require new checks be issued (for checking accounts), and would likely mean resetting online bill pay accounts and electronic deposits and withdrawals. Banks may also limit certain privileges afforded non-trust account holders (e.g. free checking, ATM fee reimbursement, etc.). This is a result of internal policy in classifying account holders and the privileges afforded each class. Lastly, some banks may attempt to require new checks be issued containing the words “Trustee”, even if the bank account number has been unchanged. There is no legal requirement for the word Trustee to be present on a check belonging to a trust account.
In the worst case scenarios, the bank will not allow trust accounts. This can be the case in many credit union, as the credit union’s charter may not permit trustees as account holders.
In either case of the intractable bank or credit union, it’s good practice to move to another bank. Banks that are difficult to deal with in transferring accounts to trust, are indicative of banks that will prove difficult for successor trustees and beneficiaries. Credit unions that do not allow trust accounts likely mean the account will need to be probated.
Lastly, under the Treasury Regulation 1.671-4, there is no requirement to obtain a separate tax identification number to open a trust bank account, provided the trust is revocable, the account holder is the grantor (trust maker) and at least one of the trustees, and the account holder is not disabled. This may be an important fact to have handy in dealing with an inexperienced bank officer.