Checking Account owned by Revocable Living Trust still needs to be closed after death?

[Nosh]

Hello Bogleheads, my wife and I recently got our Estate Plan documents done with an Estate Attorney. It's a simple situation, married couple with young kids, living in Florida.

The Estate Plan includes a Revocable Living Trust. Now we are working on funding the Trust. The attorney's advise for funding the trust was as follows:
- for our retirement accounts and HSA, the other spouse should be the primary beneficiary, and the Trust the contingent beneficiary.
- for our term life insurance, the Trust should be the primary beneficiary
- for our main checking, savings accounts and taxable brokerage accounts, he said he leaned towards making the Trust the OWNER of the accounts instead of the primary beneficiary, but either option would work as we are younger.

Our primary checking account is a Fidelity Cash Management account. Doing some reading online, I found this article that says (if I understand correctly) that even if we change ownership of the accounts to a Trust intead of just making the Trust the primary beneficiary, the successor Trustees may not be able to seamlessly take over the management of the account. Since the trust is using my Social Security number instead of its own EIN, a new checking account would be needed anyway. "Setting up a brand-new bank account is almost always necessary if the old account was created with the grantor’s Social Security number and the trust is to continue existing and carrying out the grantor’s wishes. Not setting up a proper trust bank account means the trust has no way to store or disperse funds from the trust, as a bank account using a dead person’s Social Security number is no longer usable. Third, the trust is now responsible for its own tax reporting and payment obligations."

https://legacyassuranceplan.com/article ... antor-dies

If this is true, is the only benefit of going through the hassle of changing account ownerships to the Trust a scenario where we are both alive but incapacitated? Is the hassle worth it, or should we just make the Trust the beneficiary?

Thanks as always!

[rossington]

Hello Bogleheads, my wife and I recently got our Estate Plan documents done with an Estate Attorney. It's a simple situation, married couple with young kids, living in Florida.

The Estate Plan includes a Revocable Living Trust. Now we are working on funding the Trust. The attorney's advise for funding the trust was as follows:
- for our retirement accounts and HSA, the other spouse should be the primary beneficiary, and the Trust the contingent beneficiary.
- for our term life insurance, the Trust should be the primary beneficiary
- for our main checking, savings accounts and taxable brokerage accounts, he said he leaned towards making the Trust the OWNER of the accounts instead of the primary beneficiary, but either option would work as we are younger.

Our primary checking account is a Fidelity Cash Management account. Doing some reading online, I found this article that says (if I understand correctly) that even if we change ownership of the accounts to a Trust intead of just making the Trust the primary beneficiary, the successor Trustees may not be able to seamlessly take over the management of the account. Since the trust is using my Social Security number instead of its own EIN, a new checking account would be needed anyway. "Setting up a brand-new bank account is almost always necessary if the old account was created with the grantor’s Social Security number and the trust is to continue existing and carrying out the grantor’s wishes. Not setting up a proper trust bank account means the trust has no way to store or disperse funds from the trust, as a bank account using a dead person’s Social Security number is no longer usable. Third, the trust is now responsible for its own tax reporting and payment obligations."

https://legacyassuranceplan.com/article ... antor-dies

If this is true, is the only benefit of going through the hassle of changing account ownerships to the Trust a scenario where we are both alive but incapacitated? Is the hassle worth it, or should we just make the Trust the beneficiary?

Thanks as always!

IIRC this really doesn’t become an issue until one of the Grantors passes. Nothing would need to change unless the survivor would need assistance with their finances at some point. One way to be proactive would be to appoint a co-trustee at that time and add them to the accounts so they then have the capacity to handle the finances if necessary.

[beyou]

I never even moved my checking into my RLT (atty didn't think it mattered for a small acct).
Just keep the checking acct joint, if one passes, the other becomes sole owner and acct lives on.
A common thing to do when one passes, is to consider adding the adult child (if any at the time) or your trustee as joint holder
of your checking acct, to avoid problems when 2nd of the couple pass.

Given your acct is already in the trust, do they let you register as. A and B Smith, trustees of xyz trust, so there are 2 SS #s ?
I know some institutions won't do that, but not sure it's forbidden universally. But if so, then it still functions as a joint acct
with the continuity required when first passes. Not sure if you can add a successor trustee later, not sure a bank could do that.

If you don't keep much in the checking acct, another option is to remove it from the trust to a joint acct.
I would call Fidelity and see what they find works best as it is likely a common scenario.

[5outof10]

Hello Bogleheads, my wife and I recently got our Estate Plan documents done with an Estate Attorney. It's a simple situation, married couple with young kids, living in Florida.

The Estate Plan includes a Revocable Living Trust. Now we are working on funding the Trust. The attorney's advise for funding the trust was as follows:
- for our retirement accounts and HSA, the other spouse should be the primary beneficiary, and the Trust the contingent beneficiary.
- for our term life insurance, the Trust should be the primary beneficiary
- for our main checking, savings accounts and taxable brokerage accounts, he said he leaned towards making the Trust the OWNER of the accounts instead of the primary beneficiary, but either option would work as we are younger.

Our primary checking account is a Fidelity Cash Management account. Doing some reading online, I found this article that says (if I understand correctly) that even if we change ownership of the accounts to a Trust intead of just making the Trust the primary beneficiary, the successor Trustees may not be able to seamlessly take over the management of the account. Since the trust is using my Social Security number instead of its own EIN, a new checking account would be needed anyway. "Setting up a brand-new bank account is almost always necessary if the old account was created with the grantor’s Social Security number and the trust is to continue existing and carrying out the grantor’s wishes. Not setting up a proper trust bank account means the trust has no way to store or disperse funds from the trust, as a bank account using a dead person’s Social Security number is no longer usable. Third, the trust is now responsible for its own tax reporting and payment obligations."

https://legacyassuranceplan.com/article ... antor-dies

If this is true, is the only benefit of going through the hassle of changing account ownerships to the Trust a scenario where we are both alive but incapacitated? Is the hassle worth it, or should we just make the Trust the beneficiary?

Thanks as always!

Assuming this is a joint revocable trust.

You can leave joint checking account as joint tenants with rights of survivorship and name the trust as POD. When the last grantor dies (1) the bank account will go to the trust without probate and (2) the trust will become irrevocable. When the trust becomes irrevocable it will need a new EIN. The bank updates the ownership and the EIN.

[Lee_WSP]

A revocable trust avoids probate if fully funded and offers some incapacity/fraud protections that a power of attorney doesn't, but you still have to administer the estate regardless.

[bsteiner]

...
Assuming this is a joint revocable trust.
...

Florida is not a community property state. So that would be unusual unless they moved to Florida from a community property state, or it's a community property trust (which Florida allows).

[5outof10]

...
Assuming this is a joint revocable trust.
...

Florida is not a community property state. So that would be unusual unless they moved to Florida from a community property state, or it's a community property trust (which Florida allows).

Agreed.

But OP referred to the trust in the singular. Thought it was a simple probate avoidance tool.

[Nosh]

...
Assuming this is a joint revocable trust.
...

Florida is not a community property state. So that would be unusual unless they moved to Florida from a community property state, or it's a community property trust (which Florida allows).

Agreed.

But OP referred to the trust in the singular. Thought it was a simple probate avoidance tool.

Yes, it is a joint revocable trust. Not sure why our attorney did it this way (although he did mention he’s tried to keep things simple as we’re younger and we should plan to update the estate plan every 10 years anyway).

[rossington]

If this is true, is the only benefit of going through the hassle of changing account ownerships to the Trust a scenario where we are both alive but incapacitated? Is the hassle worth it, or should we just make the Trust the beneficiary?

As you envision life can change suddenly, so:
If your children are still very young I would say yes. (I'm thinking of the responsibility of the Guardian/Successor trustees here).
If your lawyer is leaning towards it, then yes. (Probably because at some point you would more than likely do it anyway).
Is it a hassle? Yes but that is the nature of trusts.

[5outof10]

The IRS sees grantor revocable trusts as see-through entities. So trust assets can still use the grantor's (or one of the grantor's) SSN as the trusts own EIN during the Grantor's life. The income is taxable to the grantor.

The bank will likely see the trust as a separate legal entity distinct and separate from the grantors. Even though the bank will have the grantor's SSN on file and report 1099s as such, the bank may require checks/transfers payable to grantor/OP to go into an account titled in grantor's name (and not titled in the trust). And vice-versa, checks made payable to the trust may be required to go into a bank account titled in the name of the trust (and not titled in Grantor's name). Most people find it more convenient to leave the bank account titled in the grantor's name during life, mirroring how payments will be submitted to grantor, and then at death have the trust named as the POD. At death the new trustee provides the bank with a trust EIN and an updated Certificate of Trust and off the trustee goes.

[celia]

Although we live in CA, a community property state with many trusts here, I think the following applies to joint (ie, spousal) trusts in all states. I have also been/ am the trustee for some trusts.

The bank will likely see the trust as a separate legal entity distinct and separate from the grantors. Even though the bank will have the grantor's SSN on file and report 1099s as such, the bank may require checks/transfers payable to grantor/OP to go into an account titled in grantor's name (and not titled in the trust).

Although the trust is a separate entity, I'm not aware of trust accounts NOT accepting checks made out to the grantor(s). DH and I have separate checking accounts at the same bank which we each control but the other person can also transact on them, if needed, since both trustees are on the account even though only one name shows on the paperwork. (We can tell who the mail is for without opening it.) Both accounts are titled as owned by our joint trust but the trustee is listed differently. For example, my account is titled "celia, trustee of the XXX trust" and uses my SSN. My husband's is titled "DH, trustee of the XXX trust" and uses his SSN. We can deposit checks made out to either of us in either account. I don't even recall if we ever had a check made out to the trust, but it would be able to be deposited into either account.

At Vanguard, we also have accounts titled as:
"Celia and DH, trustees of the XXX trust"
and similar accounts like at the bank. Both checking accounts link to the cited Vanguard account and separately to the same-named Vanguard accounts. (Part of the reason for separate accounts is personal preference and to keep our inheritances separated. The account titling is more complicated than indicated here.)

Our printed checks are the same as before we had a trust. We have both of our names on them as no-one needs to know we have a trust although I know many people who do.

And vice-versa, checks made payable to the trust may be required to go into a bank account titled in the name of the trust (and not titled in Grantor's name).

I agree with this, but what circumstances would trigger such a check other than a house sale or cleaning up an estate after death of the last grantor?

Most people find it more convenient to leave the bank account titled in the grantor's name during life, mirroring how payments will be submitted to grantor, and then at death have the trust named as the POD. At death the new trustee provides the bank with a trust EIN and an updated Certificate of Trust and off the trustee goes.

Most people would be better off having their taxable accounts owned by the trust. If the grantors become incapacitated or just tired of managing their money at any time, it is easier for the successor trustee to become a full trustee and just carry on compared to having the successor trustee have to have the accounts become trust accounts AND also be recognized as a trustee.

If you think about it, there are more important things for the successor trustee to do when the need arises than fighting with financial institutions to finish up what the grantors didn't do when the trust was created. Unfortunately, lawyers don't recognize this since it may not happen until after they retire or die.

What's the point of having a trust if you don't fund it?

PS. Don't forget to re-title real estate.

[Nosh]

Thank you everyone for weighing in, this has been very interesting and helpful. What I’m taking away from the discussion is that it’s probably worth the minor hassle of re-titling our existing checking account. But I shouldn’t expect it to be a totally seamless process for the successor trustees if we pass, they will still need to jump through a few hoops.

[RetiredAL]

Thank you everyone for weighing in, this has been very interesting and helpful. What I’m taking away from the discussion is that it’s probably worth the minor hassle of re-titling our existing checking account. But I shouldn’t expect it to be a totally seamless process for the successor trustees if we pass, they will still need to jump through a few hoops.

My parents kept their checking/savings out of their Trust added me as 'joint' to their checking/savings accounts years ago. Mom passed years ago, Dad just last year. I have maintained the jointly titled (Dad/me) checking account and additionally created a Trust Checking account using an EIN. With his account still open, I've had no issues depositing checks to him or transferring via ACH's into his account. I have kept the balance low to avoid gettin interest being reported under his SS number, thus simplifying tax handling for 2023.

The pro's of titling checking to the Trust is easier Trustee change in the event of incapacitation and banks are somewhat notorious for not accepting existing external POA when the agent is needed. They want the original owner there to sign the banks POA paperwork at the bank and that my not be possible when incapacitation is involved.

As a negative, you likely will have to create a new account when the time comes for needing change it to an EIN and then having to deal with all the auto-pays assigned to the old account #. In my Dad case, all of his bill paying continued as before and I slowly changed the vendors over to the new Trust Account at my leisure.

If you decide to keep your checking under your name, do get a subordinate assigned as either joint or POA earlier than later.