TOP DRAWER ARTICLE

Totten Trusts
by
HL Carpenter

Do you want to gift a special grandchild of legal age with an inheritance that’s not part of your will? How about bequeathing a lump sum to a favorite sibling? Maybe you’ve been thinking of putting money into a savings account for your executor to use for expenses after you’re gone.

In any of these situations, a Totten Trust might fit your plan.

Named for a case decided by the Court of Appeals of New York in 1904, Totten Trusts are now valid in most states. Financial institutions may call them “in trust for” (ITF) or “payable on death” or “pay on death” (POD) accounts.

But whatever the name or acronym, the idea is the same: An informal, revocable trust that gives you a way to control your funds and distribute them according to your wishes.

Here are key points:

• If you have a withdrawable account at a bank, savings and loan or credit union, you can set up a Totten Trust. A withdrawable account includes cash, US treasury securities and US savings bonds. The account is generally insured by the Federal Deposit Insurance Corporation.

• You and/or your spouse can set up a Totten Trust by signing a simple form and designating a qualified beneficiary or beneficiaries. Qualified beneficiaries include your natural born child, a stepchild, an adopted child, grandchild, parents and siblings.

• Beneficiaries do not have to be advised they are listed, nor can they touch the money on deposit while you or your co-trustee is living.

• Changing a beneficiary is a simple matter of filling out a new form, and you can do it as often as you like.

• The funds in the account are not subject to probate, though your estate may owe tax on the balance in the account at your death.

Totten Trusts have been called the ‘poor man’s will’ because they effectively establish a trust without formal paperwork or the need for a lawyer. They’re convenient, legal and useful. However, remember they’re only part of your overall estate plan. Be sure to seek professional advice about other choices available to you.

Originally published May 2008.

Last update: December 30, 2009