Should the new accounts I am opening to MS be in my trust?

[ElainePDX]

Both my husband and I lost our parents when they were relatively young. My husband's dad died first - he was in his late 60s - and my mom died last, at age 78. Settling his parents' estate was hard and costly. Settling my parents' estate - more complex because assets were distributed among my deceased sister's five children who lived abroad, as well as others - was far easier and cheaper. My parents had a trust. My in-laws did not.

Living through these experiences, and with my mom's trust attorney as a guide, my husband and I decided to create two trusts, one for each of us. We are both trustees on both trusts. When we created the trusts in 2000, we were advised that the biggest error trustees make is that they do not put (and keep) all assets in their trusts. We have been good about putting our assets in the trusts, distributing them as equally as possible between the two. For example, whenever we buy or refinance property, we are very careful to get the property into the trust as soon as the paperwork allows that.

But recently, I have opened several checking accounts to facilitate MS. None of these accounts are in the trusts. For one thing, opening a ST account from Oregon was tricky enough; adding the trust complexity might have brought unnecessary attention to the account. Ditto for the Fidelity account I opened because the next churn will include the Fidelity Amex, the Chase account I opened to get various cash bonuses and reduce the annual fee on a safety deposit box, and the UFBDirect I was using before I opened the ST. Having a variety of accounts also helps for AP.

When my dad was dying, my mom decided to open a joint checking account with me which was outside of their trust. This allowed me to help her pay bills and gave her access to funds in the days following my dad's death. She was unsure she needed such an account, but it gave her peace of mind to do it so we did so. We maintained that account, and I used it to pay her household bills and funeral expenses when she died. The existence of this joint account with me, which remained outside the trust, caused no problems when we transferred her assets to her heirs.

But the accounts I am opening now are joint with my husband, so it isn't quite the same thing.

I realize that state laws vary somewhat, but are there any MSers here who have trusts as well as checking accounts that are outside of their trusts? Should I be concerned about this or is it a non-issue?

I know I could consult with the lawyer who drew up the trusts, but explaining MS and such to someone outside the hacking community is a bit daunting to me, and might just earn me a lecture and the advice that I mend my ways.... So before I do that, any guidance from folks here will be most welcome.

Thank you!!

 

[cocobird]

Hi Elaine,

I am not an expert with trusts; however, I do have most hard assets in trusts (house, rental, stocks) in the trust and most cash outside of a trust account. The reason is that the rules on checking, savings, and CDs are easily transferable according to how the accounts are titled. Generally, there are few complications with these accounts unless you have a particular legal situation (examples - the accounts are being frozen due to the IRS, the funds are being attached from a lawsuit, or someone is litigating your wills).

To easily pass cash outside of the trust, you can title the account so there is an eligible beneficiary. This is an informal trust Note that each financial institution titles these according to state law and/or custom. So the account might be titles Mom ITF Daughter and Son (ITF - in trust for), or Mom and Dad ATF granddaughter (ATF - as trustee for). There are other titlings as well. These accounts are not formal trusts such as the one you have created with the help of a lawyer. So the accounts can be opened, closed, or used however you wish. Only upon the death of all the owners, do the beneficiaries receive the proceeds. Eligible beneficiaries are generally lineal in nature (in other words an aunt, nephew, etc are ineligible beneficiaries).

You can also have accounts in your name and give the ability to draw checks on the account to a non-owner. You do not have to have the account in the name of joint owners. So your mother could still have had an account in her name only as the sole owner, but you are an authorized signer on the account and then can write checks on her behalf.

Setting up the accounts outside of the trust simply requires a signing the bank's template forms - easily done at opening or changing the accounts titles.

The drawbacks to putting your cash accounts in the trust is that you have to provide the legal paperwork for the formal trust. Technically, you are writing checks on the account as a trustee (which can occasionally cause the receiver of such a check to require additional docs too). So there are some minor hassles.

 

[ElainePDX]

Cocobird, thanks so much for your cogent and detailed reply! It confirms what I had hoped and experienced, and affirms my decision to keep the new MS accounts outside the trusts.

I also have experience with accounts that were set up in my name FBO (For the benefit of) my nieces, who were children. When my sister died, I was put in charge of managing their assets, and needed checking accounts to help move money to my brother-in-law as needed. A local banker set up accounts strictly for that purpose and the FBO titling ensured that if something happened to me at a time when cash was in those accounts, the girls would get it.

Thanks again for taking the time to both explain and share how you do it; it sounds like the way I have been proceeding too. Happy Weekend!

 

[cocobird]

Reading about your FBO accounts, it dawned on me that I should clarify one item. State law permits ITA, FBO, ATA, etc accounts for anyone. The only time there is an issue with having an account for someone that is not your spouse, child or grandchild is that the FDIC deposit insurance is not applicable. I identified this titling as illegal, when in fact it is legal, simply not insured by FDIC. This would only become an issue in the event that the bank failed. The FDIC may ask someone for proof of the familial relationship before paying deposit insurance.

 

[Matt]

I don't have a perfect answer but I would simply consider there are two very important factors:

1. Trusts and titling are generally used to avoid or accelerate Probate, for both the purposes of confidentiality and also for expediting the release of assets to beneficiaries.
2. You (@ElainePDX ) have a strong desire, based on experience to at least ensure that the estate is clean enough for the latter part of the above.

With that in mind, I think that you should avoid holding outside of the trust IF the assets are going to be needed quickly and cleanly by the beneficiaries. If you have enough cleanly titled assets within the trust to mean that a slightly longer process could ensue, without causing financial or emotional distress that you wish to avoid then you should be fine.

The question you do need to ask the person who established your trust would be: "Based on this structure, would my beneficiaries be impacted by any assets outside of the trust". If created properly I can't see why it would, but it is important to have it looked at.

 

[ElainePDX]

Reading about your FBO accounts, it dawned on me that I should clarify one item. State law permits ITA, FBO, ATA, etc accounts for anyone. The only time there is an issue with having an account for someone that is not your spouse, child or grandchild is that the FDIC deposit insurance is not applicable. I identified this titling as illegal, when in fact it is legal, simply not insured by FDIC. This would only become an issue in the event that the bank failed. The FDIC may ask someone for proof of the familial relationship before paying deposit insurance.

@cocobird, this is very interesting. I opened the FBO accounts for my two nieces in 2000 just as a way to be able to send money to them or to their father. We never left any money in these accounts for any length of time. If cash was needed, say to pay for a summer camp or trip, I would sell an investment or cash in a money market, put the funds in the FBO account, and then write a check to the appropriate family member. I can't remember why we could not go directly from investment acct to checkwriting. Perhaps it was an issue of monthly fees, because the FBO account was completely free. But I was never told it was not FDIC insured!

With both girls now 21+, it is moot as there is no longer a need for the FBO accounts.

 

[ElainePDX]

I don't have a perfect answer but I would simply consider there are two very important factors:

1. Trusts and titling are generally used to avoid or accelerate Probate, for both the purposes of confidentiality and also for expediting the release of assets to beneficiaries.
2. You (@ElainePDX ) have a strong desire, based on experience to at least ensure that the estate is clean enough for the latter part of the above.

With that in mind, I think that you should avoid holding outside of the trust IF the assets are going to be needed quickly and cleanly by the beneficiaries. If you have enough cleanly titled assets within the trust to mean that a slightly longer process could ensue, without causing financial or emotional distress that you wish to avoid then you should be fine.

The question you do need to ask the person who established your trust would be: "Based on this structure, would my beneficiaries be impacted by any assets outside of the trust". If created properly I can't see why it would, but it is important to have it looked at.

@Matt, very good points, all. Thanks.

The other point is that, like the FBO accounts I used for my nieces, the various MS accounts never have huge amounts of money in them. Mostly money moves through them. I see no reason that my husband and/or daughter would not be able to access the funds, assuming they are listed as joint owners, just as I was able to access funds that were outside of my parents' trusts when they became sick and after their deaths.

But I have made a note to confirm with the trust attorney.

What is foremost in my mind right now is that we must get our townhouse back into the trusts, since we had to remove it in order to close on our recent refi. But we can't do it until we get documents back from the county and they are very slow to process the paperwork. Should something bad happen, having the townhouse outside the trusts would be much more difficult and costly to settling the estate than a few MS checking accts!

Thanks again, Cocobird and Matt.

 

[cocobird]

@cocobird, this is very interesting. I opened the FBO accounts for my two nieces in 2000 just as a way to be able to send money to them or to their father. We never left any money in these accounts for any length of time. If cash was needed, say to pay for a summer camp or trip, I would sell an investment or cash in a money market, put the funds in the FBO account, and then write a check to the appropriate family member. I can't remember why we could not go directly from investment acct to checkwriting. Perhaps it was an issue of monthly fees, because the FBO account was completely free. But I was never told it was not FDIC insured!

With both girls now 21+, it is moot as there is no longer a need for the FBO accounts.

My apologies for not being clear. Your FBO account would be FDIC insured as an individual account. When one sets up a beneficiary account, FDIC has separate insurance when there are eligible beneficiaries. Since the FDIC insurance limit applies to each type of insured account, the insurance would have defaulted back to the individual account limits. This can be problematic when someone has multiple individual accounts that resulted in an aggregate amount over the insured limit.

My only excuse for confusing you is that I haven't had to calculate the insurance limits for over 20 years, so my last explanation was incomplete. Sick puppy that I am, I still keep up with the insurance rules.

 

[ElainePDX]

No apologies necessary! Thanks for all your explanations!