What bank for trust account ?

[theodore2]

State = New York

Hi. We finally setup an irrevocable trust for my parents and they are ready to move a large chunk of their cash savings account into a bank account that will be managed by the irrevocable trust. I'm having a hard time finding a bank that allows trust accounts with anything but the most meager of interest rates, i.e. 0.05% or less. Seems like all the higher interest rate yields at banks I've checked (BankofAmerica, Etrade, CapitolOne, etc) are reserved for traditional individual savings accounts, not trusts. Actually, CapitolOne doesn't even allow online banking trust accounts. Is there some industry rule or federal law that prohibits a trust account from being in such a bank account? Or am I not looking hard enough?

All we want to do is put this money into a money market or savings account and leave it there for many years, but I can't find a bank to do so.
Am I missing something? Advice and experiences greatly appreciated.

Many thanks,
Theodore2

 

[Taxing Matters]

State = New York
Is there some industry rule or federal law that prohibits a trust account from being in such a bank account? Or am I not looking hard enough?

No, but there is no law that mandates the banks pay a high rate of interest on the trust accounts either.

By the way, did you consult an estate planning attorney and tax attorney prior to setting up an IRREVOCABLE trust? Unless the trust qualifies as a grantor trust under the Internal Revenue Code (IRC) the transfer of assets by your parents to that trust will be gifts that are subject to the federal gift tax rules regardless of the amount transferred. That means they'll have to file federal gift tax returns and use up chunks of their unified estate and gift tax credit for each gift they make to the trust. Moreover, that trust will have to file annual income tax returns if its income is $600 or more during the year, and unless the income is distributed to beneficiaries during the year, the trust pays the income tax, too, at a more highly progressive tax rate schedule than if the income is passed through to the beneficiaries. When they die, there is also no step up in basis for the assets in the trust. That's not a big deal if the assets are all cash, but if invested in other assets it could be a significant issue.

A grantor trust under the IRC is effectively ignored for federal tax purposes and the assets and income of the trust are treated as the assets and income of the trust grantors (your parents). As a result, a grantor trust does not have those same tax issues. A grantor trust is one in which the grantors retain certain powers specified in the IRC. By far the most common way estate planners make it a grantor trust is by making the trust revocable. Thus, revocable trusts are very popular for estate planning. They avoid probate for the assets in the trust but do not come with the various downsides of irrevocable trusts that are not grantor trusts.

An irrevocable trust can also be difficult to change should their needs change in later years. Revocable trusts are must more flexible. There are, of course, situations in which the irrevocable trust is the way to go and perhaps your parents situation is one of those. But if they didn't consult an estate planning and tax attorney about this, they really should to make sure it's the right thing to do.

All we want to do is put this money into a money market or savings account and leave it there for many years, but I can't find a bank to do so.

Why settle for such a low return? Even in accounts for individuals the interest rates on money market or savings accounts are really low. It's better than the money being parked in a checking account, but not by a whole lot.

 

[theodore2]

Hi and thanks for the reply. The irrevocable trust was setup, for future medicaid planning, via an estate planning/elder care/tax planning attorney who has done this for years and is locally well-known for this service. We are comfortable in the manner it was setup and understand that my parents' gifting of money into this irrevocable trust counts against their lifetime maximum. That said, I find it odd that most of the banks I contacted seem to shun trust accounts. If direct recommendations are not allowed on this board, any readers who have suggestions can also Direct Message me. I'm just stumped on this so far.

 

[LdiJ]

Hi and thanks for the reply. The irrevocable trust was setup, for future medicaid planning, via an estate planning/elder care/tax planning attorney who has done this for years and is locally well-known for this service. We are comfortable in the manner it was setup and understand that my parents' gifting of money into this irrevocable trust counts against their lifetime maximum. That said, I find it odd that most of the banks I contacted seem to shun trust accounts. If direct recommendations are not allowed on this board, any readers who have suggestions can also Direct Message me. I'm just stumped on this so far.

Tour a nursing home that accepts Medicaid patients and then tour a Nursing home that does not. You will bitterly regret not having their own money available for them to use for a nursing home after that.

 

[t74]

They need a financial advisor. Banks are not the only option.