A Totten trust may sound like a fancy and unusual type of estate planning tool. In fact, it is just another name for a payable on death bank account.
When you open a payable on death bank account (P.O.D. account), you assign a beneficiary through your bank. You act as trustee of the money in the account for the designated beneficiary, until your death. The P.O.D. account can have multiple trustees, which you can set up through the bank. The bank will require you to sign a special type of deposit agreement to open a Totten trust account. Banks often limit the type of deposit account you can use for your Totten trust.
Bank accounts opened by trustees for living trusts or for trusts created through wills are not Totten trusts. Under the law, Totten trusts have no “subject” of the trust besides the money in the bank account. (Probate Code § 80.) In contrast, other types of trusts have separate, written trust documents and often other property besides money in the bank account. Totten trusts cannot hold real estate or any personal property besides, sometimes, securities.
If a Totten trust is set up properly and has a living beneficiary, the money in the account will automatically pass to the beneficiary upon the trustee’s death. The beneficiary, relatives of the deceased person, or the estate executor will probably need to provide the bank with a copy of the death certificate. Totten trusts often do not need to be part of a probated estate because they already have designated beneficiaries. In this way, they are similar to other types of trusts.
The characterization of money you contribute to a Totten trust could affect who receives it on the account holder’s death. For example, if the account holder contributes money that is community property of himself and his wife, then the wife may have a claim to half of the money. If the account holder contributes money that is separate property, all will go to the beneficiary.
Further, creditors of the trustee can reach money the trustee places in a Totten trust account. This is because the trustee can take out money, add money, or close the account at any time. The trustee has control over the funds, and thus creditors can access them to get payment for the trustee’s debts.
Planning your estate and want to open a Totten trust? Angela Klenk, Esq. and the team at Beach Cities Estate Law couple personalized attention to your estate plan with big law firm experience for a winning combination to give you peace of mind. To schedule a case evaluation, visit Beach Cities Estate Law online or call Angela’s office at (424) 400-2125.