When it comes to trust funding and trust settlement, many bank employees don’t know as much as they think they do. Unfortunately, it seems to be getting worse in some areas, but it is fortunately getting better in others. Over the last several months, there have been multiple instances of banks getting it wrong when it comes to client bank accounts. This is not to say all bank personnel are getting everything wrong when it comes to trusts and estates, but it’s happening often enough that you can’t take what bank personnel say at face value. Here are some of the most recent incidents.

The account has to go through probate.

Years ago, a client brought her father in to set up his revocable living trust to make sure his eventual estate avoided probate. We set up the trust, ran through the usual briefing on trust funding, and she helped her father with the mechanics of retitling accounts. He recently passed on, his daughter the successor trustee went to the bank… and the bank personnel told her she couldn’t access the account that was titled in the name of the trust without papers from the probate court. This is one instance where things are getting worse each and every year.

After speaking with me, she went back to the bank with her father’s trust, refused to get papers from the court to access an account that was in the name of the trust, and demanded to speak with the bank manager or else she would need to get her attorney (me) involved. Very quickly, the bank responded by telling her she was correct, gave her access to the bank account, and explained that all future inquiries in the bank regarding accounts for trusts or estates will now be routed through a specific bank employee familiar with how things work. That is definitely progress. I commend the bank on taking this important step in helping their clients by having a point person for these types of accounts. Otherwise, there could be months of unnecessary probate just to get a piece of paperwork that was actually unnecessary.

Just go down to the court.

A client recently passed on, and his power of attorney agent and named executor called me about the trouble he was having with the bank. Unfortunately, this was a case where the client didn’t want a revocable living trust (and there were some good reasons for his decision), so the account was in his sole name but without a pay-on-death beneficiary named as we suggested. The banker casually told the person, “Oh, it’s so easy… just bring the death certificate down to the court, fill out some forms, and they’ll give you the Letters Testamentary we need.”

Whoa, whoa, whoa! What do you mean “it’s so easy?” That’s like telling a driver if they don’t like that the bumpy road they are on to just pullWills and Trusts off into the woods and drive through the trees instead. There is a whole other process that is legally required to happen once probate is started. However, the banker’s interest in what is going on, ends when the Letters Testamentary are submitted. What about filling out the Inventory afterwards? What about getting written verification of the date of death balance on the account from the bank separate from bank statements or print outs? What about setting up the estate account to receive the funds, and then accounting for every penny in and out with copies of invoices, cancelled checks, and receipts? And what about how some expenses are allowed to run through the estate and some aren’t? What about filling out the final accounting with everything balanced down to the penny? The banker left all of that out because their interest in the matter ends when they get that piece of paper. Yes, they can then release the funds, but they were setting up this person for a whole court process they would be swearing under oath to complete over numerous months, but made it seem like they had to visit the courthouse once and it was done. I referred him to the probate attorney we use.

You need a taxpayer ID number for your revocable living trust.

One of the most common mistakes for new bank personnel is insisting that an account in the name of a revocable living trust needs to have its own taxpayer identification number and you can’t just use a social security number. This is just plainly false. The same personnel will pull up their bank’s internal regulations about needing a separate taxpayer ID number, but these are for trusts that are irrevocable. Fortunately, as the use of revocable living trusts to avoid probate become more widespread, challenging the newer bank personnel results in a more experienced employee or manager stepping in, getting it right, and simultaneously training the employee on how ID numbers are supposed to work with revocable living trusts. So why would this be a big deal anyway?

The bank really just needs an identification number for an account because it needs to know who is responsible for paying the taxes on growth and interest. That’s it. When it comes to revocable living trusts, all taxation just flows through to the Trustors’ 1040 tax return. If the trustor is an individual, then just use their social security number. The simple rules of thumb for couples: 1) if it is an account that is being changed into the name of the trust, just keep using the social security number already associated with the account, or 2) if it is a brand new account, use the social security number of the person who would likely be using it most. There’s no magic here. The bank just needs a number for tax reporting purposes. However, getting a separate taxpayer identification number could result in years of demands from the IRS for a 1041 trust tax return when one was never needed in the first place.