What Is a Totten Trust?

The more modern name for this simple kind of trust is a payable-on-death bank account.

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A “Totten trust” is really just a payable-on-death (POD) bank account—an account for which the owner names a beneficiary, who inherits the funds in the account when the account owner dies.

Using Totten Trusts to Avoid Probate

These accounts are widely used, because they provide an easy way to transfer money at death without probate court proceedings. To set up a POD account or to turn an existing savings or checking account into a POD account, all the account owner has to do is fill out some paperwork provided by the bank, naming the POD beneficiary. The documents must be turned into the bank, so it has a record of who the beneficiary is.

Naming a POD beneficiary doesn’t have any consequences until the account holder dies. The beneficiary doesn’t have any rights to the money as long as the account owner is alive. And the account owner is free to close the account, withdraw some or all of the funds, or name a different beneficiary. The money in the account isn’t protected from the account owner’s creditors.

That’s it. When the account owner dies, the POD beneficiary simply goes to the bank and collects the funds in the account.

Why They’re Called Totten Trusts

The name comes from a 1904 decision in a New York case called In re Totten. The court ruled that it was okay for someone to open a bank account as a trustee for another person, who had no right to the money until the account owner died. Other courts hadn’t allowed this, objecting that the arrangement was trying to take the place of a will, and that wills must be executed with much more formality—for example, witnesses must watch the will-maker sign.

The Totten court got around this problem by calling the account a “tentative trust”—in more modern language, a revocable trust. The account owner acts as trustee, controlling money that will eventually go to the trust beneficiary. But whether you call the arrangement a Totten trust, revocable bank account trust, or a POD account, the result is the same.

After the Totten decision, other states adopted the idea of Totten trusts. Later, state legislatures began enacting statutes authorizing and regulating these accounts, but calling them payable-on-death accounts instead of Totten trusts.

The Executor’s Role

If you’re the executor of an estate, and the deceased person left behind Totten trust or POD bank accounts, the beneficiary may be able to claim the funds without your help. Usually, all that’s required is evidence of the death (a certified copy of the death certificate) and of the beneficiary’s identity. Banks have been doing this for years, and they’re very familiar with the process—they’re the ones who provide the forms on which account owners designate their POD beneficiaries, after all.

Learn about how to claim money in a POD account.

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