Why Not Put A Checking Account In A Trust?

Why should you not put a checking account in a trust?

In this article you’ll learn about:

whether bank accounts should be included in a living trust
the trustee bank account requirements
how to write checks from a trust account
whether you can deposit a check made out to a trust into a personal account

Scroll down to learn more.

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Why Not Put A Checking Account In A Trust?

Here are some reasons why you might not put a checking account in a trust:

Ease of Access: Trusts, especially irrevocable trusts, can have restrictions on access to funds. Placing a checking account in a trust might limit your immediate access to funds, which could be inconvenient for everyday expenses.
Small Estates: If your estate is relatively small and does not have complex distribution requirements, it may not be necessary to create a trust for a checking account. Simple beneficiary designations or joint accounts may suffice.
Probate Avoidance: One of the primary reasons for placing assets in a trust is to avoid probate. However, not all assets need to go through probate. Many jurisdictions offer simplified probate procedures for smaller estates or assets with designated beneficiaries like payable-on-death (POD) accounts.
Tax Considerations: Depending on your financial situation and goals, placing a checking account in a trust may have tax implications. Some trusts can have different tax treatment, so it’s essential to consult with a tax advisor or trust attorney to determine the best strategy for your situation.
Complexity and Costs: Creating and managing a trust can involve legal and administrative expenses. For smaller estates or straightforward distribution plans, the cost and complexity of a trust might not be justified.
Beneficiary Designations: Many financial institutions offer beneficiary designation options for accounts like checking accounts. This allows you to specify who will receive the funds upon your passing without the need for a trust.
Specific Goals: Trusts are often used for specific purposes, such as asset protection, charitable giving, or managing assets for minors. If your primary goal is merely to pass on a checking account to a loved one, simpler methods like beneficiary designations may suffice.
Revocable vs. Irrevocable Trusts: Revocable trusts, which can be changed or revoked during your lifetime, provide flexibility but do not offer the same level of asset protection as irrevocable trusts. The choice between these trust types depends on your goals.
Legal Formalities: Creating and maintaining a trust involves legal formalities, including drafting and signing trust documents. If you prefer a more straightforward approach to estate planning, you might opt for other methods.

Should I Put My Trust Name On Checks?

Putting your trust’s name on checks is a good practice if you have established a trust and intend to use it for financial transactions.

Doing so helps clarify that the funds belong to the trust and not to you personally.

This can help avoid confusion about the ownership of the funds.

This is especially helpful when multiple accounts are involved.

Additionally, banks and financial institutions may require checks to be issued in the name of the entity that owns the account.

Using the trust’s name ensures compliance with their requirements.

What Checks Can Be Deposited Into A Trust Account?

Checks that can be deposited into a trust account typically include those made payable to the trust, its trustee, or its beneficiaries.

It’s just necessary that the checks are consistent with the trust’s terms and purposes.

Here are some common types of checks that can be deposited into a trust account:

Checks Payable to the Trust: Any checks explicitly made payable to the trust’s name, such as “The Smith Family Trust” or “The John A. Doe Revocable Living Trust,” can be deposited into the trust account.
Checks Payable to the Trustee: Checks made payable to the trustee of the trust, in their capacity as trustee, can be deposited into the trust account. For example, “John A. Doe, Trustee of The Doe Family Trust.”
Beneficiary Payments: Checks payable to beneficiaries of the trust, as specified in the trust document, can be deposited into the trust account. These checks may represent distributions or payments from the trust to the beneficiaries.
Estate Checks: If the trust is involved in the administration of a deceased person’s estate, checks payable to the estate or estate representative can be deposited into the trust account if permitted by the trust terms.
Real Estate Transactions: Proceeds from the sale of real estate owned by the trust, including checks from buyers, can be deposited into the trust account.
Investment Earnings: Checks representing interest, dividends, or other investment earnings earned by trust assets can be deposited into the trust account.
Insurance Payments: Insurance proceeds related to trust-owned assets, such as property or casualty insurance claims, can be deposited into the trust account if the trust is the named beneficiary.
Royalties and Income: Checks representing royalties, income, or payments from trust assets, such as intellectual property, can be deposited into the trust account.
Gifts or Contributions: If the trust allows for contributions or gifts from individuals or entities, checks from donors made payable to the trust can be deposited.

Should Bank Accounts Be Included In A Living Trust?

Including bank accounts in a living trust is a common and often recommended estate planning strategy.

By transferring bank accounts into your living trust, you can achieve several advantages.

Here are a few reasons you should consider including bank accounts in a living trust:

Probate Avoidance: One of the primary benefits of placing bank accounts in a living trust is that it helps avoid the probate process. Upon your passing, the assets in the trust can be distributed to your beneficiaries without the need for probate court involvement, which can be time-consuming and costly.
Privacy: The details of your bank accounts and financial assets become private when held in a living trust. Unlike probate, which is a public process, the trust administration occurs privately, keeping your financial affairs confidential.
Efficiency: Trust administration can be more efficient and quicker than probate, allowing your beneficiaries to access the funds in a more timely manner.
Management During Incapacity: A living trust can also provide for the management of your bank accounts and assets if you become incapacitated. You can designate a successor trustee to manage your affairs in the event you are unable to do so yourself.
Flexibility: You maintain control over your assets in the trust during your lifetime, and you can modify or revoke the trust as needed.

Trustee Bank Account Requirements

Here are some requirements for trustee bank accounts:

Documentation of Trust: To open a trustee bank account, you typically need to provide documentation that verifies the existence of the trust. This includes a copy of the trust document or a certificate of trust.
Trustee Identification: The trustee(s) must provide identification, such as a driver’s license or passport, to verify their identity.
Tax Identification Number (TIN): Trusts are generally required to have a separate Tax Identification Number (TIN) or Employer Identification Number (EIN). This number is used for tax reporting purposes, and the bank may request it when opening the account. You can obtain an EIN from the IRS.
Trustee Appointment Documentation: The bank may require documentation, such as a notarized affidavit of trustee appointment or acceptance, to confirm the trustee’s authority to act on behalf of the trust.
Bank’s Trustee Account Agreement: Banks often have specific account agreements for trustee accounts that outline the terms and conditions, including the bank’s responsibilities and the trustee’s obligations.
Trust Resolution: Some financial institutions may request a trust resolution or certification of trust, which is a document prepared by the trustee that certifies the trust’s existence and the trustee’s authority to act on its behalf.
Trustee Powers: If the trust document specifies any limitations or special powers granted to the trustee, the bank may request documentation of these powers to ensure that the trustee is acting within their authority.
Beneficiary Information: Depending on the bank’s policies and the type of trust, they may require information about the trust’s beneficiaries.
Bank-Specific Requirements: Each financial institution may have its specific requirements and documentation, so it’s advisable to contact the bank where you intend to open the trustee account to inquire about their specific procedures.
Minimum Deposit: Some banks may have a minimum initial deposit requirement to open a trustee account, so be prepared to fund the account accordingly.
Trustee’s Fiduciary Duties: Trustees have a fiduciary duty to act in the best interests of the trust and its beneficiaries. Banks may require the trustee to acknowledge and agree to their fiduciary responsibilities when opening the account.

Writing Checks From A Trust Account

Here’s a step-by-step guide on how to write checks from a trust account:

Review the Trust Document: Start by carefully reviewing the trust document to understand the trust’s purpose, beneficiaries, and any specific provisions related to check writing and financial transactions.
Verify Your Authority: Ensure that you are authorized to act as the trustee of the trust and that you have the legal authority to make financial transactions on behalf of the trust. If there are co-trustees, ensure that all trustees are in agreement.
Obtain a Tax Identification Number (TIN): If the trust does not already have one, obtain a Tax Identification Number (TIN) or Employer Identification Number (EIN) from the IRS. This number is used for tax reporting and is typically required when opening a trust bank account.
Open a Trust Bank Account: If you haven’t already done so, open a bank account in the name of the trust. The account title should clearly indicate that it is a trust account, including the trust’s name and the trustee’s name and title (e.g., “John A. Smith, Trustee of the Smith Family Revocable Living Trust”).
Fund the Trust Account: Transfer trust assets and funds into the trust bank account. Ensure that you maintain accurate records of all deposits and transactions.
Use Trust Checks: Order checks specifically designed for the trust account. These checks typically include the trust’s name and the trustee’s name and title. Make sure the checks comply with any bank-specific requirements.
Complete the Check: You will fill out the check as normal. However, it’s important that you sign the check as the trustee, using the trust’s name and your trustee title, such as “John A. Smith, Trustee of the Smith Family Revocable Living Trust.”

FAQs About Why You Shouldn’t Put Checking Accounts In A Trust

Here are other questions about putting checking accounts in a trust.

Why Does The Bank Need A Copy Of My Trust?

Banks typically request a copy of your trust document for several reasons.

In general, banks are ensuring compliance with legal requirements and facilitating efficient trust account management.

Banks need to verify the existence and validity of the trust.

A copy of the trust document serves as evidence that the trust is legally established and authorized to conduct financial transactions.

And to open a trust bank account, the bank needs to know the trust’s terms and provisions.

This allows the bank to set up the account in accordance with the trust’s requirements and to properly title the account.

Can You Deposit A Check Made Out To A Trust Into A Personal Account?

No, typically you should not deposit a check made out to a trust into a personal account.

Let’s say you are the trustee of a trust.

Depositing a check made out to the trust into your personal account could be perceived as a breach of that duty.

This is because it would co-mingle trust funds with personal funds.

Commingling trust funds with personal funds can have legal and tax implications.

It may complicate accounting, create confusion about the ownership of funds, and potentially expose the trustee to legal challenges.

Additionally, trusts are distinct legal entities.

Therefore, checks made payable to the trust are meant to be deposited into a trust account.

Where Can I Cash A Trust Fund Check?

Beneficiaries of a trust fund can typically cash or deposit trust fund checks at various financial institutions and banking facilities.

Beneficiaries can visit their own bank or credit union and deposit the trust fund check into their personal account.

Before attempting to cash or deposit a trust fund check, beneficiaries should ensure that they have appropriate identification.

They also may need to provide documentation related to the trust to confirm their status as beneficiaries.

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properly (and legally) distributing assets

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Tailored solutions to fit your unique needs and goals
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Creditors seizing your assets
Lawsuits jeopardizing your family’s financial security
Family disputes over inheritance
Costly and time-consuming probate processes

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Why Not Put A Checking Account In A Trust?

Table of Contents

The Hive Law Has Been Featured In

Get A FREE Consultation!

Why Not Put A Checking Account In A Trust?

Should I Put My Trust Name On Checks?

What Checks Can Be Deposited Into A Trust Account?

Should Bank Accounts Be Included In A Living Trust?

Trustee Bank Account Requirements

Writing Checks From A Trust Account

FAQs About Why You Shouldn’t Put Checking Accounts In A Trust

Why Does The Bank Need A Copy Of My Trust?

Can You Deposit A Check Made Out To A Trust Into A Personal Account?

Where Can I Cash A Trust Fund Check?

Get A Trust Set Up

Get A FREE Consultation!

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