Totten Trust
Overview
A Totten Trust, also known as a "payable-on-death" (POD) account or "tentative trust," is a simple and cost-effective estate planning tool where a person deposits money in a bank account as a trustee for another person (the beneficiary). The unique feature of this arrangement is that the depositor maintains complete control of the funds during their lifetime, and upon their death, the remaining funds automatically pass to the named beneficiary without going through probate.
Key Features and Benefits
1. Control During Lifetime
- Account owner retains full control
- Can withdraw funds at any time
- Can change beneficiaries
- No obligation to notify beneficiaries
2. Probate Avoidance
- Assets transfer immediately upon death
- No court intervention required
- Reduces administrative costs
- Maintains privacy
Setting Up a Totten Trust
Requirements
- Valid bank account
- Named beneficiary
- Proper account registration (typically "John Doe, in trust for Jane Doe")
- Beneficiary's Social Security number
Common Uses
- Emergency fund planning
- College savings
- Gift planning
- Simple estate distribution
Differences from Other Trust Types
| Totten Trust | Traditional Trust |
|---|---|
| Informal | Formal legal document |
| No separate trust document | Requires trust agreement |
| Limited to bank accounts | Can hold various assets |
| Revocable only | Can be revocable or irrevocable |
FAQ Section
Q: Can I name multiple beneficiaries?
A: Yes, you can name multiple beneficiaries and specify the percentage each should receive.
Q: Do beneficiaries have access to funds while I'm alive?
A: No, beneficiaries have no rights to the funds until after the account owner's death.
Q: Can creditors access these funds?
A: During your lifetime, yes. After death, the funds typically pass to beneficiaries before creditors can claim them.
Q: Can I change beneficiaries?
A: Yes, you can change beneficiaries at any time without their consent or knowledge.
Important Considerations
- Beneficiary designation supersedes will provisions
- Joint accounts may affect trust validity
- State laws may vary regarding recognition
- May impact Medicaid eligibility
Summary
A Totten Trust serves as a valuable estate planning tool for those seeking a simple, cost-effective way to transfer bank account assets upon death. Its primary advantages include:
- Probate avoidance
- Maintained control during lifetime
- Easy setup and management
- Flexibility in changing beneficiaries
Understanding Totten Trusts can help individuals make informed decisions about incorporating them into their estate planning strategy, particularly for straightforward asset transfers that don't require complex trust arrangements.
Legal Notice
This information is provided for educational purposes only and should not be considered legal advice. Consult with a qualified estate planning attorney for guidance specific to your situation.
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Related Terms
Here are some related terms that are relevant to the estate planning term "Totten Trust":
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Payable-on-Death (POD) Account: A type of bank account that allows the account holder to designate a beneficiary who will receive the remaining funds upon the account holder's death, similar to a Totten Trust.
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Tentative Trust: Another term used to describe a Totten Trust, as it is a revocable trust that can be changed or revoked by the account holder during their lifetime.
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Revocable Trust: A type of trust that can be modified or terminated by the grantor (the person who created the trust) at any time during their lifetime.
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Irrevocable Trust: A type of trust that cannot be changed or terminated by the grantor once it has been established.
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Probate: The legal process of administering a deceased person's estate, including distributing assets and paying debts.
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Beneficiary: The person or entity designated to receive the assets or benefits of a trust, account, or other financial arrangement upon the account holder's or grantor's death.
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Estate Planning: The process of arranging for the management and distribution of a person's estate upon their death or incapacity.
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Joint Tenancy: A form of property ownership where two or more people own the same property with equal rights and the surviving owner(s) automatically inherit the deceased owner's share.
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Medicaid: A government-run health insurance program that provides coverage for low-income individuals, which may be affected by the assets held in a Totten Trust.
By understanding these related terms, individuals can better comprehend the context and implications of using a Totten Trust as part of their estate planning strategy.
