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Cash & Bank Accounts
In General
Opening/Closing of Accounts
Loss of Privileges and Imposing Penalties
Printing the Name of
the Trust on Checks
Automatic
Electronic Deposits/Withdrawals
Tax
Payer Identification Number
Maintaining an Account
in Joint Tenancy
Additional
Documents Required
Credit Unions
Payable
On Death Accounts (POD)
Funding Tip
FDIC Insurance
IMPORTANT NOTICE TO USERS:
The information contained in this legal bulletin is general in nature and
does
not constitute legal advice. Non-attorneys should consult
with a qualified estate planning attorney regarding any trust funding matter.
Issues of state law may contradict any information contained herein.
Accordingly, the information contained in this legal bulletin and on our web
site should not be relied upon without first confirming with a qualified
attorney that the legal requirements in a particular state are satisfied.
This web site, our products and services, and any accompanying resources
are
not intended to be a substitute for research, continuing legal education, or a
thorough knowledge of the law. In using any aspect of this
web site, the user, whether attorney or non-attorney, agrees to assume all
responsibility for the validity of the information contained herein.
In
General: Cash Accounts would include bank and credit union accounts.
They are
funded by initially contacting the financial institution and requesting that title to the
account be changed to the name of the living trust. Although each institution has
different internal procedures for changing title, most institutions will require that the
change of ownership be noted on a signature card.
Opening/Closing of
Accounts: Note that some institutions may require that the original account
be closed and a new account be opened, while other institutions will simply change the
name on the original signature card to reflect the new ownership in the trust.
Loss of Privileges
and Imposing Penalties: CAUTION! Be
careful when funding cash accounts to inquire as to whether there will be any economic
penalty or loss of privileges if the account is funded. Although it is becoming
increasingly less frequent, it has been common practice in the banking industry to limit
senior citizen discount privileges, ATM privileges, free checking privileges and the like
for accounts held in trust ownership.
Some
banking institutions may impose a penalty for transferring a certificate of deposit (CD)
prior to its maturity date. Generally, the branch manager has authority to waive the
penalty. An alternative may be to attach a "Pay on Death" (POD) designation to
the CD until the maturity date and then fund the asset into the trust.
CAUTION:
Because of the potential penalties when funding cash accounts and CDs in some
circumstances, we
recommend that you contact your estate planning attorney to determine which strategy best meets your estate planning goals.
Printing the
Name of the Trust on Checks: Most institutions will provide their customers
with a substantial degree of latitude regarding what information is printed on the face of
their checks. There is no legal requirement that the name of the trust be printed on the
checks. Many trustmakers would prefer not to disclose the nature of their estate planning
on the face of their checks. Additionally, people in the business world may become
confused as to whether they can accept a check that reflects the ownership as a trust.
If
an institution insists that the name of the trust be printed on the face of the check,
consider having an estate planning attorney with trust funding experience
contact the bank's legal department to help resolve the matter.
Automatic
Electronic Deposits/Withdrawals: Before funding any accounts, you should
verify as to whether there are any automatic electronic deposits or withdrawals
associated to the account. These would include direct deposit of Social Security, Pension
and Payroll checks, mortgage and home equity line of credit payments and debit cards.
Should any of these types of transfers occur, consider opening a new account and transfer
the electronic transfers to the new account number. You may wish to consider keeping both
accounts open concurrently for 30 to 60 days until the new electronic transfers are
established and verified.
Tax Payer
Identification Number: Occasionally, institutions will ask for verification
of the tax payer identification number prior to effectuating the change of ownership.
Under the Treasury Regulations, [Tres. Reg. 1.671-4] the trustmaker is required to use
their social security number as their tax payer identification number so long as:
If all of these conditions are met, the trustmaker can satisfy the
transfer agent by completing a W-9 form. Should you need any assistance
with this matter, we recommend that you contact an estate planning attorney with
trust funding experience for help.
Maintaining
an Account in Joint Tenancy: Some attorneys have recommended that married
clients maintain a checking account in joint tenancy. This can be a dangerous practice as
the clients could potentially lose control of the asset in the event either spouse
becomes incapacitated. Additionally, assets in the account could potentially
lose estate planning benefits pertaining to estate tax planning, creditor protection planning, or bloodline
protection. Attorneys that recommend this practice also counsel their clients to maintain
a relatively small amount of assets in the account. Often these same attorneys have been surprised
on the death of a client that there had been a substantial amount of assets deposited in
the account with the intention that it would only be for a short period of time!
CAUTION: Because of the potential
pitfalls of ownership in joint tenancy, we strongly recommend that you consult
with your estate planning attorney.
Additional Documents
Required: Many institutions may request verification that the trust is
actually in existence. Your attorney can help contact your local institution directly to ascertain what documents they need.
Generally,
including a copy of an Affidavit of Trust or the pages of the trust reflecting the name
and current trustees and the signatures will satisfy most institutions.
Your estate planning attorney can advise you about which trust documents are
required by various banking institutions. Expect some
institutions to require that the original passbooks be returned for re-issuing.
Credit Unions: Credit
unions have traditionally been a thorn in the side of many attorneys and clients
as they
have often refused to transfer ownership of accounts to a revocable living trust.
Often
the credit union’s charter specifically restricts them to titling accounts only in
the name of individuals.
NOTE: Should this problem arise, we recommend that you
contact your estate planning attorney
for assistance in funding credit union accounts.
Payable On Death
Accounts (POD): The use of a POD designation is one method of funding a cash
account that allows for the transfer of the ownership of an account to a named beneficiary
on the death of the account owner. The named beneficiary can either be an individual
(e.g.
spouse, child, parent, etc.) or a revocable living trust can be named as the POD
beneficiary. CAUTION: Not all states allow for a POD designation although it is becoming more
popular. As a general rule, the POD method should be avoided due to the lack of control of the
account during disability. More importantly, the use of a POD designation may diminish the
importance of trust funding to the clients. We recommend that you contact
your estate planning attorney before
using the POD designation as a method of funding your bank accounts to your
trust.
Funding Tip: Each
bank or credit union will have different requirements for funding accounts into a
revocable living trust. Additionally, you may also notice that there may be some
difference in the policies between two different branches of the same institution.
For
this reason, we recommend that you fund bank accounts under the supervision of
an estate planning attorney to ensure accurate and complete transfers.
Impact on FDIC Insurance: An issue
that should be considered is what impact funding a cash account will have on
FDIC insurance coverage. The insurance of accounts in revocable trust funds is a highly
complicated topic. Not only can revocable trust documents be many pages in
length, but such documents can vary greatly in their terms, with a single term
making a big difference in the amount of insurance coverage permitted. For this reason, it is difficult to make quick and easy
statements about how such trust accounts are insured. The FDIC has published a detailed memorandum
that outlines the various issues that should be considered.
NOTE: We recommend that you contact
your estate planning attorney to ascertain the impact on your FDIC insurance
when funding your bank accounts to a revocable living trust.
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