Can a Revocable Trust Be the Beneficiary of a Personal Bank Account?

Beneficiaries are those who inherit accounts or receive assets when you die. When you name a beneficiary, you give that individual or entity a legal claim that overrides anything you've set out in a will. You also allow the beneficiary to avoid the whims, costs and delays of a probate court proceeding. Beneficiary designations must be handled with care, and a regular review of who is supposed to get what, and when, is a smart financial play.

It is possible to name a beneficiary for your bank accounts, including checking and savings accounts as well as certificate of deposits and money market accounts. The beneficiary can be an individual or a revocable trust, meaning a trust that you as the grantor can change or revoke. The point of doing so would be to give the beneficiary clear legal title to the assets, without the complications of probate or the delay involved in inheriting through a will.

An alternative to designating a beneficiary would be simply retitling the bank account, or making it a joint account. By doing this, the new account owner or co-owner has immediate access to the funds and inherits the entire account on the death of the original owner. In some states, there are some tax advantages to retitling accounts. Pennsylvania, for example, levies an inheritance tax on only half the assets if the account is more than a year old and the co-owner is a parent or child. However, there is no inheritance tax savings with a revocable trust.

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If you make a revocable trust the beneficiary of a bank account, you allow the trust to inherit the assets in the account directly. If you retitle the account in the name of a trust, then you allow the trustee -- who can be a relative, a friend, an attorney or yourself -- direct control over deposits and withdrawals, subject to the directions set down in the trust document. You would still have control over the assets as the trust grantor, who has the right to change the terms at any time, appoint a new trustee, add or remove beneficiaries, or place new assets into the trust.

A payable on death or POD account accomplishes the same probate avoidance as a beneficiary designation. The POD account -- also known as a transfer on death account -- goes directly to the individual or group named as the beneficiary. This trumps any instructions that you may have included in your will. The POD account has an important limitation: It does not allow you to name an alternate beneficiary. With an ordinary bank account retitled to a revocable trust, you can select a second beneficiary to receive the account in case the first is not alive when you pass away.

You can retitle a bank account simply by filling out paperwork with the bank renaming the account. The new title indicates that a named trustee now holds the account under the trust name, such as the "Bob Jones Revocable Trust." Check the bank's policies carefully; in the case of certificate of deposit accounts, the bank may consider a retitling as a withdrawal, and levy early-withdrawal fees as a result. Accounts held by a trust are entitled to $250,000 of coverage from the Federal Deposit Insurance Corporation, in the case of a bank failure, for each beneficiary who has the right to inherit the assets on the passing of the trust owner.