CONTRIBUTED CONTENT: Should your financial accounts be titled to your trust?

You’ve signed your living trust. Now comes the question nearly every Idaho client asks: does every bank and brokerage account need to be retitled in the trust’s name, or can you simply add a payable-on-death (POD) or transfer-on-death (TOD) beneficiary to the accounts?

Both approaches keep the account out of probate. The right choice depends on two things: what should happen if you become incapacitated, and who is receiving the money.

How beneficiary designations work in Idaho

Under Idaho’s version of the Uniform Probate Code, a POD (“Pay on Death”) account belongs entirely to you during your lifetime; the beneficiary has no rights to it until your death. When you die, the bank pays the surviving beneficiary directly, and that designation cannot be changed by your will. Brokerage accounts work much the same way through a TOD (“Transfer on Death”) registration. That simplicity is the appeal, but it can also be a limitation.

When a POD or TOD beneficiary is usually enough

Leaving an account in your own name with a beneficiary designation often works well when:

• Your beneficiaries are adults who can responsibly receive money outright.

• You want simple, equal shares with no conditions.

• You’ve named backup beneficiaries on the account.

• You have a durable power of attorney so someone can manage the account if you can’t because you’ve become incapacitated.

There is also a middle path: keep the account in your name but name your trust as the POD or TOD beneficiary. At your death, the money flows into the trust and is distributed under its terms. Actually, many clients find this to be the best approach.

When the account should be titled to your trust

Retitling to your trust is the better choice when:

You want seamless incapacity planning. A POD designation does nothing while you’re alive. If you become incapacitated, your agent under a power of attorney must manage the account, and some institutions scrutinize or delay accepting those documents. An account already titled to your trust passes management directly to your successor trustee

(though your successor trustee will still have to prove to the bank that you are incapacitated).

A beneficiary is a minor or financially vulnerable. A POD or TOD designation pays outright. A minor generally can’t take the money directly, which may require a court-supervised conservatorship. A beneficiary receiving needs-based public benefits could lose eligibility. A trust can hold and manage the funds instead.

A beneficiary might die before you. Under Idaho law, if one of several POD beneficiaries dies first, that share generally passes to the surviving beneficiaries, not to the deceased beneficiary’s children, unless the account terms specifically say otherwise. If no beneficiary survives you, the account falls back into your probate estate. Your trust, by contrast, can name grandchildren or other contingent beneficiaries.

Your plan is more than “split it equally.” Blended families, staggered distributions, or shares held in continuing trust can’t be expressed on a bank’s simple POD form.

You have many accounts. Each designation on each account must be updated separately whenever your plan changes; miss one and it may land that account in probate.

Two important exceptions

Retirement accounts. Never retitle an IRA, 401(k), or similar account to your trust. A change of ownership is treated as a withdrawal and can trigger income tax. These accounts pass only by beneficiary designation, and whether to name your trust as beneficiary deserves careful review with your attorney.

Community property. Idaho is a community property state. If you’re married, an account funded with earnings during the marriage generally belongs half to each spouse. Beneficiary designations and trust funding should be coordinated so both spouses’ plans work together.

The bottom line

A beneficiary designation is a useful tool, but it is not a substitute for a well-funded trust in every case. After signing your trust, review each account’s title and beneficiary with your attorney, and revisit them whenever your family or finances change.

My law firm is currently offering free telephonic, electronic, or in-person consultations concerning probating estates or creating estate planning documents.

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Robert J. Green is an Elder Law, Trust, and Estate Planning Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, or powers of attorney, contact Kootenai Law at 208-765-6555, [email protected], or visit www.KootenaiLaw.com.

This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.