ITF Bank Accounts

What Is an ITF Bank Account?

An ITF bank account is an account at a financial institution that is held by one person in trust for someone else. A properly designed Florida ITF account or gift-giving plan can help minimize estate and income taxes, and it can also remove property from the reach of the parents’ creditors. Lifetime gifts to children reduce the size of the parents’ taxable estate, thereby reducing the amount of inheritance subject to high death tax rates. Gift giving may also reduce the parents’ lifetime income tax. If a child is in a lower tax bracket than the parent, a gift program will transfer income to the child’s lower tax bracket.

Gifts of non-exempt assets to children provide significant asset protection if the gifts are not reversible under fraudulent transfer statutes. Property titled in a child’s name is not subject to execution by a parent’s judgment creditors.

Understanding ITF Bank Accounts

An example of an ITF bank account title would be as follows: “John ITF Mary” or John POD Mary. Both accounts are set up by John and funded with John’s money. In both cases, when John dies all the money in the accounts passes to Mary outside of any probate of John’s estate.

One client asked us about an ITF vs. a POD account. This client was interested in two banks: one that permitted only ITF accounts and another that only used POD accounts.

Does the choice of these two titles make any difference in terms of protecting the money from John’s creditors during his lifetime?

The term “ITF” means “in trust for.” ITF implies the existence of a trust relationship so that the beneficiary of the trust (Mary) would have equitable ownership in the account funds from the day John funds the account.

On the other hand, if John opened a POD (payable on death) account, Mary would have no rights or interest in the account during John’s life. Instead, Mary would first acquire an interest upon John’s death.

From an asset protection standpoint, John is a trustee over Mary’s money during his life in the case of an ITF account, and John has no equitable ownership in the money which would be vulnerable to his creditors.

The creation of the ITF account is an immediate gift in trust to Mary. On the other hand, in John’s POD account, John has a life estate in the account and the beneficiary has a remainder interest. During his lifetime John has full access to money in his POD account—Mary’s interest is limited to what is left in the POD account upon John’s death.

Because John can access the POD account for his own use during his lifetime, John’s creditors could attack money his POD account as they can get whatever rights John has in the POD account. Therefore, an ITF account provides better asset protection as well as probate avoidance.