Some elements of smart estate planning don’t involve traditional estate plan documents like wills and trusts. There are other ways that people can help assets transfer easily and quickly to their intended beneficiaries.
One of these is a payable-on-death (POD) account. It’s also referred to as a Totten trust after a 1904 New York case in which the court ruled that someone could open a bank account as a trust for someone else. These accounts are now legal throughout the U.S.
How it’s different from other types of trusts
A Totten trust is actually a bank account that is established with a named beneficiary to whom the assets will automatically transfer when the owner of the account dies. The account doesn’t go through probate.
Like a revocable living trust, the owner of the account retains full access to the money in the account. The beneficiary can’t access them until the owner passes away. The owner can withdraw or deposit assets or close the account.
It’s possible to name multiple beneficiaries on a Totten trust. However, upon the owner’s death, the assets will be distributed equally between or among the beneficiaries. One beneficiary can’t receive more than the others.
A Totten trust is simple and free to establish at a financial institution. (Some may refer to them as POD accounts.) It’s important to note, however, that it doesn’t offer the protections that other types of trusts do. For example, they aren’t protected by creditors if the owner owes money.
Anyone who is considering establishing a Totten trust is wise to first get legal guidance to determine whether it’s the best option for their goals and how it fits in with their overall estate plan.