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Estate planning for checking, savings, money market, brokerage and other bank accounts

Posted by Nina Whitehurst | Oct 03, 2021 | 0 Comments

Every time I help a client with estate planning, we have the "talk" about how to handle bank accounts.  Here is a discussion of the relative merits of different methods for handling bank accounts in estate planning, from best to worst. 

RETITLE EXISTING BANK ACCOUNT TO YOUR TRUST.  

This means keep the same account number but change the identity of the owner to your trust.  This is 99.9999% of the time my first and highest recommendation.

  1. Provides for smooth succession in the event of your incapacity
  2. Provides for smooth succession upon your death (avoids probate)
  3. Makes it harder for your agent (trustee) to steal from you (compared to naming them as co-owners) while you are alive because by law he/she has fiduciary obligations to you
  4. Does not expose your money to claims of creditors and divorcing spouses of your agent (trustee)
  5. More thorough plan of distribution than can be obtained by naming a death beneficiary
  6. No need to print new checks
  7. Preserves existing automatic deposits and withdrawals

OPEN A NEW BANK ACCOUNT IN THE NAME OF YOUR TRUST.  

  1. Provides for smooth succession in the event of your incapacity
  2. Provides for smooth succession upon your death (avoids probate)
  3. Makes it harder for your agent (trustee) to steal from you (compared to naming them as co-owners) while you are alive because by law he/she has fiduciary obligations to you
  4. Does not expose your money to claims of creditors and divorcing spouses of your agent (trustee) while you are alive

HOWEVER, here are the “cons”

  • You will need new checks
  • Does NOT preserve existing automatic deposits and withdrawals.  You will have to transfer all of those to your new account.

ADD AGENTS TO YOUR ACCOUNT AS ATTORNEYS IN FACT.  

Instead of retitling your account to the name of your trust or opening a new account in the name of your trust, you can simply add the agents named in your financial power of attorney to your bank account as attorneys in fact (not as co-owners).

  1. Provides for smooth succession in the event of your incapacity
  2. Makes it harder for your agent (trustee) to steal from you (compared to naming them as co-owners) because by law he/she has fiduciary obligations to you
  3. Does not expose your money to claims of creditors and divorcing spouses of your agent (attorney in fact) while you are alive
  4. No need to print new checks
  5. Preserves existing automatic deposits and withdrawals

HOWEVER, here are the “cons”

  • Does not accomplish succession upon your death.  Does not avoid probate.  For that you would need to name a death beneficiary.  I would recommend naming your trust as death beneficiary.
  • Some financial institutions will not honor perfectly valid powers of attorney that they consider “stale”.  If you are going to use this method, do not delay.
  • This method cannot be used on an account that is already in the name of a trust.  If you want to switch to this method, you would need to open a new bank account in your individual name.

NAME YOUR TRUST AS DEATH BENEFICIARY.  

  1. No need to print new checks
  2. Preserves existing automatic deposits and withdrawals
  3. Provides for smooth succession upon your death (avoids probate)
  4. Does not expose your money to claims of creditors and divorcing spouses of your agent (attorney in fact) while you are alive
  5. Makes it almost impossible for your agent to steal from you absent forging your signature or pretending to be you (unless you also add them to your bank account as agent or as co-owner)

HOWEVER, here are the “cons”

  • Does not provide for any succession upon your incapacity.  For that you would need some other method, such as adding your agent under your financial power of attorney to your bank account as such (not as co-owner).
  • This method cannot be used on an account that is already in the name of a trust.  You could theoretically name a death beneficiary anyway, but it would never be activated because trusts do not die.

ADD OTHER PEOPLE TO YOUR ACCOUNT AS CO-OWNERS.  

This is what people usually mean when they say they “added” their adult child to their bank accounts.  Whether they realize it or not, they just made that adult child a co-owner.  As you can see, this method carries with it more downsides than upsides.

  1. Provides for smooth succession in the event of your incapacity
  2. No need to print new checks, but sometimes people do anyway so the new additional owner's name is shown
  3. Preserves existing automatic deposits and withdrawals
  4. Might or might not accomplish succession upon your death.  This depends on whether or not you granted rights of survivorship.

HOWEVER, here are the “cons”

  • If you make the co-owner a joint tenant with right of survivorship (or community property with right of survivorship or tenancy by the entirety), the co-owner gets all of the money in your account when you die.  This might or might not be consistent with your plan of distribution.   It does avoid probate, but this can sometimes also trigger litigation by the disinherited heirs. For married couple, this often works well for the first death but creates a probate asset at the second death.
  • If you do not provide for a right of survivorship, the co-owner owns a portion of your account when you die and the other portion (yours) becomes a probate asset.  This might or might not be consistent with your plan of distribution.  It would be inconsistent with the desire of most people to avoid probate.
  • Makes it super easy for your co-owner to steal from you and very difficult for others to prove that it was not your intent to give all of the money in the account to the co-owner with no strings attached
  • Exposes your money to claims of creditors and divorcing spouses of your co-owner while you are alive and after you die.
  • For more information about multi-owner accounts, click here.

NAME INDIVIDUALS AS DEATH BENEFICIARIES.  

  1. No need to print new checks
  2. Preserves existing automatic deposits and withdrawals
  3. Provides for smooth succession upon your death (avoids probate)
  4. Does not expose your money to claims of creditors and divorcing spouses of your agent (attorney in fact) while you are alive
  5. Makes it almost impossible for your agent to steal from you absent forging your signature or pretending to be you (unless you also add them to your bank account as agent or as co-owner)

HOWEVER, here are the “cons”

  • Does not provide for any succession upon your incapacity.  For that you would need some other method, such as adding your agent under your financial power of attorney to your bank account as such (not as co-owner)
  • Not nearly as complete a plan of distribution compared to naming your trust.  Your trust expressly covers what happens if one of your beneficiaries predeceases you or is incapacitated at the time of your death.  This method can have many unintended consequences, such as disinheriting grandchildren, but it all depends on how the beneficiary designation is worded.  Most people do not know how to word beneficiary designations correctly, or the bank's form simply does not allow for a sophisticated plan of distribution with all kinds of “if, then” provisions.
  • For more information about the perils of relying on beneficiary designations, click here and here

If you need help arranging your affairs the way you want them, give us a call.  It's what we do.

 
 

About the Author

Nina Whitehurst

Attorney at Law Nina has been practicing law for over 30 years in the areas of estate planning, real estate and business law She is currently licensed in Alaska, Arizona, California, Colorado, Oregon and Tennessee. Her Martindale-Hubbell attorney rating is the highest achievable: 5 stars in peer...

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