(By Jeffrey G. Marsocci, The Plain English Attorney)
Why You Cannot Forget
“No. No. No. Don’t do this.”
That’s what I find myself saying—sometimes out loud—when clients create a revocable living trust but never finish the job by actually putting their bank accounts into it. Why even have a trust if you’re not going to use it the right way?
The Problem: An Unfunded Trust Is an Empty Suitcase
I often tell clients that setting up a trust is like having a perfectly designed suitcase built for your trip through life. It’s customized to fit your needs and protect everything along the way. But if you don’t pack it—if you don’t actually put your assets in it—it can’t do you any good.
And the most commonly forgotten “packing items” are bank accounts.
A Real-Life Example of What Can Go Wrong
A long-time client recently came in for an annual review after his wife had passed away. One of his three children had also died. His plan was simple: everything should go equally to the three kids. But when we checked the bank accounts, it was a mess.
- Bank Account #1: Joint with his late spouse—no backup beneficiary.
- Bank Account #2: Payable on death (POD) to the three children equally. But since one child had passed away, that third went to his two minor grandchildren per stirpes… meaning a court would now have to supervise that money for six years until the youngest turned 18.
- Bank Account #3: POD to an old friend once named executor—someone who had since become homeless, addicted, and possibly deceased.
All of that could have been avoided if those accounts were properly titled in the name of the trust.
Option 1: Title the Bank Account in the Name of the Trust
This is almost always the best approach. When an account is titled in the name of the trust, the trust rules apply automatically. If one spouse passes, the survivor—usually the co-trustee—continues managing it. When both are gone, the successor trustee steps in seamlessly. No court. No frozen accounts. No probate.
If a check is ever made out to the trust—say from a house sale—you can deposit it directly into the trust account. It’s clean, efficient, and immediate.
Option 2: Make the Account “Payable on Death” to the Trust
Sometimes people have too many automatic deposits and bill payments linked to an account to easily change the name. In that case, make it payable on death to the trust. This means that when you pass away, your trustee simply brings ID, a death certificate, and a copy of the trust to the bank to transfer funds. It’s not ideal, but it’s much better than doing nothing.
If you go this route, first, make sure to only do this with the accounts that have all of the automatic deposits and bill paying. Don’t use this technique as an excuse to not do the more extensive paperwork to title the other accounts in the name of the trust.
Second, make sure the bank keeps a copy of your durable general power of attorney on file. That way, if you become incapacitated before you pass, someone can still manage the account without the bank refusing access. And if they insist on using their own power of attorney form—fine. Fill it out right there while you’re in the branch.
Option 3: Leave It Alone (If It’s Truly Outside the Plan)
Some accounts really shouldn’t go into your trust—like joint accounts you hold with your adult children for their expenses, or with a parent whose bills you help coordinate. If it’s their money, not yours, then leave it alone. But if the joint owner passes away, that account becomes yours, and at that point you may need to retitle it.
Option 4: The Lazy Option—Doing Nothing
Unfortunately, this one happens far too often. A client sets up their trust, nods along when we review the funding checklist, and then… never goes to the bank.
Then, years later, I get the panicked call:
“I just sold my house, but the check’s made out to my trust and the bank won’t let me deposit it!”
That’s when I have to explain that the house was titled in the trust—but the bank accounts weren’t. Which means there’s no account titled in the name of the trust to receive the funds. It’s a simple fix that became an emergency because it was never handled earlier.
So please—don’t be that person. If you have a trust, use it.
Why Banks Make This Harder Than It Should Be
Thanks to post-9/11 anti-money-laundering rules, banks can’t simply “change the name” on an account anymore. They’ll usually require you to open a brand-new account in the name of the trust and move your funds over.
If you have a lot of direct deposits and automatic payments, yes, that can be a headache—but not every account has to be complicated. You can always start with your savings, tax, or vacation accounts and move the main checking account later.
When you do go to the bank, go in person. Don’t let them send you home with forms or tell you to “do it online.” Sit with the banker, get the confirmation printouts, and make sure it’s handled correctly before you leave.
The Bottom Line
Setting up a trust is a great first step—but funding it properly is what actually keeps your family out of court and your estate out of chaos. A trust that isn’t funded is like a locked suitcase sitting empty in your airport carousel after you land. It looks nice, but it won’t do you any good when you get to your destination.
So take the time to do it right. Review your funding checklist. Visit your bank. Make sure your accounts are titled or payable to your trust.
Because in estate planning, the small details are what make the big difference between a smooth transition… and a long, expensive court process.
Want to Learn More?
You can learn more about funding your trust at www.FreeTrustCourse.com, which contains a copy of my book Estate Planning Basics, which has a full chapter devoted to trust funding, or find detailed guidance in my paid course at www.TrustFundingCourse.com.
Until next time, stay safe, plan ahead, and enjoy life. And whatever you do—make it a great day.