Is a Totten trust right for your situation?

On Behalf of | Jun 15, 2016 | Trusts |

Ask any financial or legal professional to list the primary goals of estate planning and chances are very good that they’ll put avoiding probate near the very top. This is largely because the probate process can prove to be highly time-consuming, very public and altogether costly.

Even though you are very likely on board with this idea of avoiding probate, it may nevertheless seem like it would require nothing short of a herculean effort. While it’s true that avoiding probate does require sophisticated estate planning efforts, it’s important to note that there are still smaller — and easier — steps that a person can take to work toward realizing this goal, including the formation of a Totten trust.

What exactly is a Totten trust?

While it sounds complicated, a Totten trust is really nothing more than a payable-on-death account, meaning you name a beneficiary for a bank account and, in the event of your demise, the account funds go directly to them and skip the probate process altogether.

How does one set up a Totten trust?

Unlike other trusts, which require the completion and filing of complex paperwork, the creation of a Totten trust is accomplished by filling out a few forms supplied by the bank in question.

This paperwork, which must be returned to the bank, will likely ask for some identifying information about yourself and the beneficiary.

What are the benefits of a Totten trust outside of avoiding probate?  

One of the significant advantages afforded by a Totten trust is its flexibility. Specifically, you can take out the money in the account as you wish, close the account or even change the beneficiary.

Does the beneficiary have any rights?

The only right the beneficiary has is to secure the money upon your demise. This means they cannot touch the account funds while you are alive. At the same time, however, since the account funds are not considered to belong to them, they are off limits should the beneficiary get divorced, file for bankruptcy or owe creditors money.

What needs to be done upon passing?

All the beneficiary of a Totten trust has to do upon your demise is appear at the bank and provide both proof of your passing — a certified copy of the death certificate — and government-issued identification. While there may be a short wait before the funds are released, this is nothing compared to the months or even years required for probate.

If you have questions or concerns regarding any sort of trust or other estate planning device, consider speaking with an experienced legal professional as soon as possible.


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