Estate planning encompasses various tools and strategies to manage and distribute an individual’s assets after death. One lesser-known but effective tool in this process is a Totten trust, sometimes referred to as a payable-on-death account. This instrument allows for a straightforward way to pass assets to beneficiaries without the complexities of probate.
Understanding what a Totten trust is and how it functions within estate planning can provide valuable insights for individuals seeking simple and efficient methods to manage specific assets, such as bank accounts.
What is a Totten trust?
A Totten trust is a specific type of bank account where the account holder names a beneficiary who will inherit the funds upon the account holder’s death. During the account holder’s lifetime, they maintain complete control over the funds and can deposit, withdraw or even close the account without notifying the beneficiary. The beneficiary can’t access the funds until the account holder’s death.
How does a Totten trust work in estate planning?
A Totten trust offers several benefits. One of the primary advantages of a Totten trust is that it allows the assets in the account to bypass probate. Probate can be lengthy. Using this type of trust to transfer funds directly to a beneficiary can save time and money.
Simplicity and flexibility
Setting up a Totten trust is typically as simple as filling out a form with the bank, and it provides flexibility. The account holder can change the beneficiary or close the account at any time without legal formalities. Because the payable on death designation is a form of a trust, the account isn’t included in the will or any other place in the estate plan.
While a Totten trust is a valuable tool, it’s essential to recognize its limitations. It only covers the specific assets in the account and may not be suitable for all estate planning needs. Having a comprehensive estate plan protects the creator and their beneficiaries.
