Do I Need a Trust if My Accounts Have Named Beneficiaries? (2024)

FAQs

Do I Need a Trust if My Accounts Have Named Beneficiaries? ›

Yes. If you have quite a bit to plan for, such as children from a previous marriage or with special needs, second homes, very large assets, or complicated investment accounts, a trust gives you the ability to define plans and limitations for beneficiaries.

“Do you need a trust if you have beneficiaries?” is a common question we get. While naming beneficiaries for your accounts is a solid first step, it isn't always enough. If you don't have a trust in place, your assets might not end up in the hands of those named on your accounts.

If your beneficiaries are minor children, for example, then your financial advisor or estate planning attorney may advise you to go with a trust account. This way, you can direct what should happen to the assets in case you pass away before your children are old enough to receive their inheritance.

The designation of a beneficiary on a bank account generally takes precedence over the instructions outlined in a Will or trust.

Not all bank accounts are suitable for a Living Trust. If you need regular access to an account, you may want to keep it in your name rather than the name of your Trust. Or, you may have a low-value account that won't benefit from being put in a Trust.

Many advisors and attorneys recommend a $100K minimum net worth for a living trust. However, there are other factors to consider depending on your personal situation. What is your age, marital status, and earning potential? At what point in time will your focus shift from wealth creation to wealth preservation?

A Trust checking account makes it easy for your Trustees to pay off debts and distribute inheritances without draining other assets or relying on outside funds. It also makes it easy to track the money going out and its Beneficiaries.

For example, when can a beneficiary withdraw money from a bank account? The simple answer is that a beneficiary can't do anything with the account until you pass away. Unless you add them as a joint owner, they wouldn't be able to make withdrawals or get information about the account.

A beneficiary has no rights to your property until after you die. The only difference you may notice is your account being called an “in trust for" or ITF account.

Should retirement accounts be in a trust? ›

Generally, transferring a retirement account to a trust is not advised. A trust can be made the beneficiary of a retirement account but, again, caution should be used. Trusts usually pay higher income tax rates than individuals.

Bank account beneficiary vs. will

Generally, a will does not override banking beneficiary designations listed on the bank account. This is because most bank accounts are considered non-probate assets, meaning they pass directly to the designated beneficiary without being subject to the terms of a will.

A beneficiary can renounce their interest from the trust and, upon the consent of other beneficiaries, be allowed to exit. A trustee cannot remove a beneficiary from an irrevocable trust. A grantor can remove a beneficiary from a revocable trust by going back to the trust deed codes that allow for the same.

A living trust can help you manage and pass on a variety of assets. However, there are a few asset types that generally shouldn't go in a living trust, including retirement accounts, health savings accounts, life insurance policies, UTMA or UGMA accounts and vehicles.

The major disadvantages that are associated with trusts are their perceived irrevocability, the loss of control over assets that are put into trust and their costs. In fact trusts can be made revocable, but this generally has negative consequences in respect of tax, estate duty, asset protection and stamp duty.

For example, if a person names their estate as a beneficiary of their life insurance policy, not only does this put the asset into the jurisdiction of the probate court, but it also subjects the funds to your creditors and may be used very differently from what you had in mind.

Life Insurance Beneficiaries

Trusts are not considered individuals; therefore, life insurance proceeds paid to trusts are generally subjected to estate tax. Also, the proceeds payable to a trust may not qualify for the inheritance tax exemption provided by some states for insurance payable to a named beneficiary.

Making one of the beneficiaries the trustee can potentially create conflict with the other beneficiaries. The other beneficiaries may wonder why they were not selected as trustee and may resent the beneficiary who was selected. Keeping in mind the reason the trust was created in the first place is also important.