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Totten Trust: Using POD Designations to Avoid Probate

What exactly is a Totten trust? Is it similar to Payable on Death? And how does a Totten trust help you avoid probate? T&W explains.

Patrick Hicks

Patrick Hicks, @PatrickHicks

Head of Legal, Trust & Will

When you’re setting up your estate plan, you’re likely looking for ways to transfer assets to your loved ones without having to go through probate, and with the least hassle possible. If you speak with someone at the bank, they may suggest that you set up a “Totten trust.” So, what is a Totten trust, and who should use them? Are they any different from a POD account? We’ll answer these questions in this guide and help you understand whether this estate planning tool is just what you were looking for.

What is a Totten Trust? 

A Totten trust is a special kind of a bank account with a named beneficiary. When the person who set up the account passes away, the funds held in the account are immediately released to the beneficiary.

The Totten trust received its name from a 1904 legal case called In re Totten. In this New York city case, the court made a new rule stating that an individual could rightfully open a bank account as the trustee. The named beneficiary would have no right to the funds held in the account until the trustee passed away. Some courts initially did not allow this, arguing that a Totten trust would just serve as a workaround to avoid creating a Will, which requires formalities such as having witnesses. 

The Totten court solved this problem by designating Totten trusts as a revocable trust. Whether you choose to call this type of account a Totten trust, a POD account, or a revocable bank account trust, you’ll be correct.

Why Are Totten Trusts Used?

Most individuals like to use Totten trusts because they’re a great way to easily transfer money at death. It’s a way to avoid probate court proceedings, and the payout goes directly to the beneficiary. 

Setting up a Totten trust is also relatively easy, as it can all be done through your bank. The bank will likely require you to fill out and sign a request form. They would then set up a Totten trust or POD account on your behalf, with your named beneficiary. 

During your lifetime, your beneficiary will not have any rights to the money held in the trust. This means that they cannot withdraw any funds or claim assets as their own while you’re alive. You will also have the ability to close the account, withdraw funds, or switch beneficiaries if you so choose. 

Upon your eventual passing, your beneficiary will be able to claim the funds without any difficulty. There may be a short waiting period, but the funds will not have to go through probate court. 

Because of the ease and flexibility offered, including the advantage of avoiding probate court, Totten trusts make for a popular estate planning tool. 

Is a Totten Trust a Real Trust?

Although a Totten trust has the word “trust” in it, one could argue that it is not technically a real Trust. A traditional trust is essentially a legal document, whereas a Totten trust is a bank account. In addition, funds from a Totten trust are released all at once and immediately upon death. This is in contrast to a traditional trust, which you can use to control the timing and nature in which funds are distributed.

However, they are similar in that you can achieve similar results. When you set up a Totten trust, you serve as both the grantor and trustee, and you have the ability to name the beneficiary. Both traditional trusts and Totten trusts are tools to help you transfer wealth to loved ones, and they both help you avoid probate proceedings. 

In summary, both Totten trusts and traditional trusts can help you achieve similar outcomes, but are not structured the same and often serve different purposes. 

Totten Trust vs POD - What is the Difference Between a Totten Trust and POD?

There is no difference between a Totten trust and a payable on death (POD) account. The Totten trust originally  received its name from the 1904 court case. In modern times, however, the term “payable on death” account is more widely used. This is likely because the latter name is more descriptive of the function of the account type, making it easier for people to understand. The user of either term is correct.

How to Use a Totten Trust to Avoid Probate

If you are interested in avoiding probate, using a Totten trust is a great option. Probate proceedings can be lengthy and costly, which eats into your beneficiary’s inheritance. In addition, waiting to receive your rightful inheritance can add stress during a time of grief. 

By placing funds into a Totten trust, you can have peace of mind knowing that the funds will be released immediately and directly to your loved ones. The triggering event is your death. Totten trusts are also great because they are revocable, meaning that you can make changes at any time during your lifetime. 

Although you will need to set up a revocable Trust for other types of assets you’d like to pass on, Totten trusts are a great way to cover your bases for any cash you have saved in bank accounts.

Set Up Your Totten Trust Today

If you’d like a way for your loved one to be able to easily collect bank funds upon your death, a Totten trust is a great way to go. Not only will these funds avoid probate, your beneficiary can access funds immediately upon your death. This can provide you with a peace of mind, knowing that your loved one will have an immediate layer of support after you’re gone.

To set up a Totten trust, contact your bank. However, keep in mind that a Totten trust should also be used in tandem with a proper Will, plus a revocable or irrevocable Trust should you choose to include one in your estate plan. This is because Totten trusts are really just a different version of a bank account in which you can name a beneficiary. They don’t cover any other aspects of estate planning, such as including a health care directive, arranging for guardianship, or the management of different types of assets to be included in your estate. Click here to find out how to easily set up your estate plan today!

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