What is a Totten Trust?

A Totten trust, which is also commonly referred to as a “Payable on Death” account, is a type of trust where money or assets are held in a bank or investment account with explicit instructions that the proceeds be paid to one or more beneficiaries upon the settlor’s death, or the death of the person who established and/or funded the account.  Only certain types of depository accounts are eligible to become Totten trusts.

Provisions for Totten Trusts

For instance, real estate is not an asset that can be conveyed via a Totten trust.  Furthermore, Totten trusts are most suitable for smaller amounts of money, such as those less than $20,000, because they are subject to estate taxes, and thus will necessarily increase your taxable estate.  Most U.S. states recognize Totten trusts as legally valid and binding estate planning vehicles.  Totten trusts are revocable in the sense that the settler can revoke the Totten trust at any time by simply closing the account, or by executing a will with alternate instructions for the distribution of the assets contained within the account. 

Plus, a Totten trust’s assets can be reached by the settler’s creditors during his or her life, which may be a disadvantage for the settler.  However, the settler also has the flexibility to access those funds if needed, as opposed to an irrevocable trust, where the settler no longer has the right to touch the assets or otherwise revoke the trust.  Furthermore, the assets are protected from the beneficiary until after the settler’s death, in that the beneficiary cannot access the assets during the life of the settler.

Getting Legal Help

Before you establish a Totten trust, you should take care to consult an experienced estate planning attorney in order to determine whether a Totten trust is appropriate for your needs.  While a Totten trust can be useful in some situations, there are many situations where a Totten trust may not be beneficial to you, to your estate, and to your intended beneficiaries.