Some of your financial assets need to be owned by your trust and others need to name your trust as the beneficiary. With your day-to-day checking and savings accounts, I always recommend that you own those accounts in the name of your trust.
Bank Accounts Held in Trust
After your death, when the person you chose to be your successor trustee takes over, the funds will be transferred to the beneficiary you named in your trust document. No probate will be necessary. To transfer the account to your trust, tell the bank what you want to do.
Assuming you are using your living revocable trust to avoid probate, the assets (which require your signature to transfer or sell) need to be “owned” by the trust. This includes checking and savings accounts, plus safe deposit boxes.
Trust bank accounts hold the assets, but funds can be used for paying expenses during the distribution of the trust. Having a separate account makes it easier to move funds into the accounts and keep track of related expenses.
No Asset Protection – A revocable living trust does not protect assets from the reach of creditors. Administrative Work is Needed – It takes time and effort to re-title all your assets from individual ownership over to a trust. All assets that are not formally transferred to the trust will have to go through probate.
Since you retain the right to alter your revocable trust at any time, there are no estate tax planning benefits inherent in using a revocable trust. If your estate is large enough to be subject to estate taxes, your estate plan may include some form of tax planning—often involving marital and credit shelter trusts.
What should you do if you receive a check in the name of the trust while serving as trustee? The following is an overview: Deposit the check into the trust's bank account. Endorse the check by signing your name and indicating that you are the trustee of the trust.
Revocable Trusts and Bank Accounts
If you have decided to set up a revocable trust and include your personal finances as an asset, you can set up a separate bank account(s). If you have more than one beneficiary, you can create more than one revocable bank account or assign a portion that will go to each.
Here's a good rule of thumb: If you have a net worth of at least $100,000 and have a substantial amount of assets in real estate, or have very specific instructions on how and when you want your estate to be distributed among your heirs after you die, then a trust could be for you.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement Accounts: Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust. Doing so would require a withdrawal and likely trigger income tax.
For all practical purposes, the trust is invisible to the Internal Revenue Service (IRS). As long as the assets are sold at fair market value, there will be no reportable gain, loss or gift tax assessed on the sale. There will also be no income tax on any payments paid to the grantor from a sale.
Only the trustee — not the beneficiaries — can access the trust checking account. They can write checks or make electronic transfers to a beneficiary, and even withdraw cash, though that could make it more difficult to keep track of the trust's finances. (The trustee must keep a record of all the trust's finances.)
Many assets, including IRA accounts, allow the holder to name a beneficiary that automatically receives the property upon the death of the property owner. Generally, a beneficiary designation will override the trust provisions.
Some of your financial assets need to be owned by your trust and others need to name your trust as the beneficiary. With your day-to-day checking and savings accounts, I always recommend that you own those accounts in the name of your trust.
Key Takeaways. A trust checking account is an account held within a trust, that is used by trustees to facilitate transactions, as mandated by the trust agreement. Trust checking accounts are insured by the Federal Deposit Insurance Corporation (FDIC).
With that said, revocable trusts, irrevocable trusts, and asset protection trusts are among some of the most common types to consider. Not only that, but these trusts offer long-term benefits that can strengthen your estate plan and successfully protect your assets.
Note: For 2021, the highest income tax rate for trusts is 37%.
Trust beneficiaries must pay taxes on income and other distributions that they receive from the trust. Trust beneficiaries don't have to pay taxes on returned principal from the trust's assets. IRS forms K-1 and 1041 are required for filing tax returns that receive trust disbursements.
One of the reasons for setting up a trust is to set aside property as separate from one's personal assets. One of the benefits of this is that assets which are held in a trust are protected from creditors, for example should the settlor become insolvent or be declared bankrupt.
Retirement accounts definitely do not belong in your revocable trust – for example your IRA, Roth IRA, 401K, 403b, 457 and the like. Placing any of these assets in your trust would mean that you are taking them out of your name to retitle them in the name of your trust. The tax ramifications can be disastrous.
The advantage of the IRA trust is that the distributions are controlled by the trustee instead of the beneficiary. The trustee, of course, can withdraw more than the required distribution from the IRA any time he wants to. The rules of the trust determine when distributions are made to the beneficiary.