Should Your Checking Account Be in Your Living Trust in New Haven?

You signed your living trust, transferred your home into it, and made sure your major assets are covered. Then you open your wallet and realize something: What about the checking account you use every day?

It is a surprisingly common question in our New Haven estate planning practice. A living trust only works as intended when the right assets are connected to it, but that does not necessarily mean every account you own should be titled exactly the same way.

Your everyday checking account is a good example of why trust funding deserves a little thought.

Can a checking account be owned by a living trust?

Generally, yes. Bank accounts can often be titled in the name of a revocable living trust.

While you are alive and able to manage your affairs, this usually does not dramatically change how you use the account. If you are the person who created the trust and serve as your own trustee, you generally continue controlling the money, paying bills, making deposits, and using the account according to the bank's procedures. The important difference shows up if you become incapacitated or pass away.

What happens if the checking account is in the trust?

If the account is properly titled in the trust and you can no longer manage it, your successor trustee can generally step in according to the terms of the trust. That can be particularly useful during incapacity. Household expenses do not stop because someone is hospitalized or unable to handle their finances. A properly funded trust may allow the successor trustee to access trust funds to pay the mortgage, utilities, insurance, care expenses, and other obligations without first going to court for authority.

After death, the trustee can generally continue using trust funds for appropriate expenses and administer the account as part of the trust rather than having the individually owned account become part of a probate estate.

Does that mean every checking account should go into the trust?

Not necessarily. Some people prefer to keep a modest personal checking account outside the trust for everyday use while placing larger savings and investment accounts in the trust. Others find it simpler to have their primary checking account owned by the trust. There may also be practical considerations involving direct deposits, automatic payments, banking relationships, account features, or other planning tools such as payable-on-death designations.

The goal is not to put assets into a trust simply for the sake of saying everything is in the trust. The goal is to create a coordinated system that works during your lifetime, during incapacity, and after death.

What happens if the account stays in your individual name?

That depends on how the account is structured. An individually owned checking account with no joint owner, payable-on-death beneficiary, or other transfer arrangement may become part of the probate estate when the owner dies. That can mean the executor needs court authority before gaining access to the funds. An account with a valid payable-on-death designation may pass directly to the named beneficiary instead. A jointly owned account may have its own survivorship rules.

Those options can avoid probate in some circumstances, but they do not necessarily accomplish the same thing as trust ownership. For example, money that transfers immediately to a beneficiary may no longer be available to the trustee to pay expenses or carry out the broader trust plan.

How do you know what belongs in your trust?

Look at your estate plan as a whole. Your trust, will, beneficiary designations, account ownership, powers of attorney, and other documents should all work together. An account that makes perfect sense outside the trust for one family may be better held inside the trust for another. This is also why signing a living trust is only the beginning. Funding and maintaining the trust are what allow the document to do the job you created it to do.

Conclusion

Your checking account can often be held in your living trust, and doing so may make it easier for a successor trustee to manage expenses if you become incapacitated or after you pass away. But the right setup depends on how you bank, what other accounts you own, and how the rest of your estate plan is structured.

If you have a living trust but are not sure whether your accounts are titled correctly, our New Haven estate planning attorneys can review your funding and help make sure your plan works the way you expect it to. Reach out to us at 203-877-7511.

‍