A Totten Trust, also known as a “payable-on-death” (POD) account, is a type of revocable trust in which the grantor (the person who creates the trust) designates assets to pass directly to a named beneficiary upon the grantor’s death. The grantor retains full control over the assets while they are alive, including the ability to deposit, withdraw, and reclaim them.
Key Features of a Totten Trust
Designation of Beneficiary
In a Totten Trust, the grantor specifies a beneficiary who will receive the assets upon the grantor’s death.
Retention of Control
The grantor retains full control and ownership over the assets in the account, including the right to amend or revoke the trust at any time during their lifetime.
Avoidance of Probate
Upon the grantor’s death, the assets in a Totten Trust bypass the probate process and go directly to the named beneficiary.
Taxable Estate Consideration
Despite bypassing probate, the assets held in a Totten Trust are included in the grantor’s taxable estate for estate tax purposes.
Historical Context
The Totten Trust was first recognized in the 1904 case of In re Totten (179 N.Y. 112, 71 N.E. 748), providing a legal precedent for such trusts in the United States.
Applicability
Estate Planning
Totten Trusts are commonly used as an estate planning tool to quickly and efficiently transfer assets to a beneficiary upon death, without the need for probate proceedings.
Simplicity and Flexibility
The straightforward nature of establishing and managing a Totten Trust makes it an attractive option for individuals looking to maintain control over their assets with minimal legal and administrative burden.
Examples
Imagine Jane, a widow, wishes to ensure that her savings account balance is passed directly to her son upon her death without the delays and expenses of probate. She can establish a Totten Trust with her bank, designating her son as the beneficiary of the account. Jane retains complete access and control over the funds during her lifetime and can make changes to the beneficiary designation at any time.
Comparisons
Totten Trust vs. Revocable Living Trust
A Totten Trust is limited to specific accounts, usually bank accounts, and is simpler to establish than a full-fledged revocable living trust, which can hold various types of properties and requires more comprehensive legal documentation.
Totten Trust vs. Irrevocable Trust
Unlike a Totten Trust, an irrevocable trust cannot be easily altered or revoked. Assets placed in an irrevocable trust are no longer under the grantor’s direct control and are not included in the grantor’s taxable estate when calculating estate taxes.
FAQs
1. **Do I need a lawyer to set up a Totten Trust?**
2. **Can I change the beneficiary of a Totten Trust?**
3. **Are the assets in a Totten Trust protected from creditors?**
4. **What happens if the beneficiary predeceases the grantor?**
5. **How does a Totten Trust affect my taxable estate?**
Related Terms
- Revocable Trust: A trust that can be altered or terminated by the grantor during their lifetime.
- Probate: A legal process through which a deceased person’s estate is administered and distributed.
- Beneficiary: An individual designated to receive assets or benefits from a trust or other legal arrangement.
- Estate Tax: A tax levied on the net value of the estate of a deceased person before distribution to the heirs.
- POD Account: “Payable on death” account, a financial account that transfers to a named beneficiary when the account holder dies.
Summary
Totten Trusts offer a simple and effective means of transferring assets directly to a beneficiary upon the grantor’s death, circumventing the probate process but still factoring into the grantor’s taxable estate. They provide flexibility and control to the grantor during their lifetime and ensure a smooth transition of assets to the intended beneficiary.
References
- In re Totten, 179 N.Y. 112, 71 N.E. 748 (1904)
- IRS Publications on Estate Taxes
- “Living Trusts for Everyone” by Ronald Sharp
- Banker’s Guide to Establishing POD accounts
By understanding the nuances and applications of Totten Trusts, individuals can make informed decisions on estate planning and asset management.
