The Estate Tax Advantages for Placing Bank Accounts in a Trust

Your estate tax planning should include considering placing your bank accounts in a trust. Trusts carry multiple advantages. Among the assets you may want to protect and shield from excessive estate taxes, bank accounts can be a priority, as they involve cash. Properly constructed trusts will allow you to give your heirs the assets you choose without the expense and common delays involved with probate court cases.

Estate Planning Tool

According to the National Association of Financial and Estate Planning, NAFEP, if you have a net worth of $100,000 or above, consider using one or more trusts to minimize your estate taxes. If you own real estate, a business or want to provide support for your surviving spouse, consider putting some assets, such as bank accounts, in trust. Properly constructed trusts will maximize your estate tax exemptions to protect your heirs.

Primary Advantages

You can place the conditions describing how and when you want your assets distributed after you pass away. Along with minimizing estate tax consequences, you'll reduce gift tax consequences you might face. Since bank accounts are easy to value with readily available cash balance information, freeing up this cash for the immediate needs of your spouse or heirs is a major advantage to those needing timely access to funds.

Avoiding Probate Court

Probate court can be time consuming and costly. The more complex your estate, the more time and money probate court typically takes. Another good reason to avoid probate court is the public nature of the proceedings. If you previously took measures to keep your asset holdings truly private, probate court actions will provide unwanted publicity of your financial position. Costs of probate court, typically 5 to 7 percent of your total estate, will devalue your bank account distributions to your heirs.

Considerations

Be specific and thorough when you consider creating a trust for your assets, including bank accounts. Whether you create a revocable living trust or an irrevocable trust, title to those bank accounts and other assets you want to protect must be transferred to the trust. To further protect your spouse and heirs, consider creating a so called "pour-over will," which covers any assets outside of your trust upon your demise. This will type directs that those assets, including bank accounts, be put into the trust at your death.

Revocable vs. Irrevocable Trusts

You can change the terms of revocable living trusts during your lifetime. Irrevocable trusts cannot be modified or terminated once created. Because of these significant differences, the tax benefits vary, with irrevocable trusts having more tax advantages while you're alive. However, if you're primarily concerned with estate planning, not current tax benefits, a revocable living trust offers you more long-term flexibility to modify trust assets and allows you to control your trust assets, including bank accounts.

Photo Credits

  • Brand X Pictures/Brand X Pictures/Getty Images

About the Author

I have the proven ability to write directly to my audience. I've written articles for websites dealing exclusively with high net worth investors ($500,000 and above) and for the "common person" like visitors to Publishers' Clearing House and Geico Insurance.

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.