Funding your Revocable Living Trust: Checking Accounts

Should I Transfer My Checking Accounts to my Revocable Living Trust or name the Trust the Pay on Death (POD) beneficiary?

Approach #1: Retitling Checking Accounts in the Name of the Trust

Pros:

• Full Control During Incapacity:
  If the client becomes incapacitated, the successor trustee immediately takes over, ensuring seamless access to funds without needing a power of attorney or conservatorship.

• Certainty of Probate Avoidance:
  Assets titled in the trust name bypass probate entirely.

• Consistency and Simplicity:
  Aligns with the broader strategy of having most assets titled under the trust, minimizing confusion.

• Clear Trust Administration:
  Allows for immediate management upon death without delays.

Cons:

• Administrative Inconvenience:
  Requires retitling accounts, executing new signature cards, and sometimes dealing with banks' procedural hurdles.

• Awkward Titling on Checks:
  Checks may reflect the trust name unless specifically requested otherwise (though most banks allow individuals’ names on checks).

• Possible Initial Confusion for Institutions:
  Some banks may lack familiarity with trust-titled accounts, potentially causing initial administrative friction.

Approach #2: Naming Trust as POD Beneficiary on Checking Accounts

Pros:

• Immediate and Simple Set-Up:
  Usually quicker and simpler to set up; just requires completing a beneficiary designation form.

• Uninterrupted Personal Management:
  Account stays in the client's individual name, avoiding potential confusion at banks or institutions regarding trust operations.

• Flexible and Intuitive:
  Many clients easily grasp the concept of beneficiary designation as opposed to retitling accounts.

Cons:

• No Incapacity Planning:
  Offers no benefit if the client becomes incapacitated; a power of attorney or conservatorship would be required to access the funds.

• Delayed Access at Death:
  Banks may require proof of death, beneficiary claim forms, and delays before releasing funds to the trust, which can temporarily disrupt cash flow.

• Risk of Probate if Trust Beneficiary Fails:
  If, for some reason, the POD designation fails (e.g., forms lost, improperly completed, beneficiary predeceases without backup), the account goes through probate.

General Recommendations among Estate Planning Lawyers:

Most experienced estate planning attorneys tend toward directly retitling accounts into the name of the trust as the recommended best practice, rather than relying solely on a POD designation. Here’s why:

• Enhanced Incapacity Protection:
  Retitling ensures immediate management by trustees upon incapacity without additional legal proceedings.

• Greater Certainty:
  Direct trust ownership clearly aligns with comprehensive trust-centered planning, limiting confusion or administrative hurdles after death or incapacity.

• More Robust Estate Plan:
  It prevents accidental probate if the POD beneficiary fails due to unforeseen circumstances or administrative errors.

However, there is no absolute right or wrong; the choice can be tailored to each client's circumstances:

• Younger Clients or Smaller Accounts:
  May prefer simplicity—POD designation might be sufficient.

• Older Clients, Complex Estates, or Incapacity Concerns:
  Often better served by direct trust retitling.