A Totten Trust is an effective Estate Planning tool for transferring your money to your beneficiaries with minimal to no drama. Find out more about how it works.
What Is A Totten Trust?
Totten trusts, or payable-on-death bank accounts, are an Estate Planning tool that allows you to transfer money to a chosen person upon your death. When you make a Totten Trust, you put funds into a Revocable Trust and designate a beneficiary to receive them.
As the individual who made the account, you are the acting trustee. The beneficiary is the person you have selected to receive the funds when you die. As trustee, you manage the funds for the benefit of this person.
When you select who will obtain the contents of your account, you may name multiple people. However, unlike a Will, you cannot specify how much goes to each person. In instances with multiple beneficiaries, banks typically split funds evenly.
Since a Totten Trust is a Revocable Trust, this allows the account holder to maintain control over the account’s contents. The money remains yours and is not an asset of the beneficiary – unlike irrevocable trusts, which transfer ownership to another party. You can access the funds in the account, allowing you to use the money if needed – i.e. for emergencies.
Your designated beneficiary cannot get the money while you are alive, which can protect the money for your loved one if your loved one gets divorced or is pursued by creditors. On the other hand, like a typical bank account, a Totten trust is subject to your creditors while you are alive.
Benefits of Totten Trust
- Probate avoidance
When you draft a Will, you decide who will receive your possessions when you die. For your beneficiaries to acquire the money and assets you left them, in many cases, your estate must go through Probate, which the court oversees.
A key advantage to using a Totten Trust is that it bypasses Probate. The funds in the Trust pass to the person you select to be your beneficiary immediately upon your death, without court oversight.
Since the Trust does not go through Probate, during which creditors can bring claims against your estate that could reduce the amount of money your loved one secures at the end of the process, your creditors cannot bring claims against a Totten Trust following your death.
- Avoid Will contests
During the Probate process, if an individual is dissatisfied with the terms of your Will, they can challenge it. This can create a lengthy and costly ordeal for the rest of your family and friends.
- More flexibility
Unlike irrevocable trusts, Totten Trusts offer flexibility. In addition to taking money from your account, you can change the beneficiary. Suppose your first beneficiary passes away prematurely, or you have a fundamental disagreement and wish to select another person to give your funds. You can change the beneficiary on the Trust for any reason.
- Tax savings
The contents of a Totten Trust are also not subject to the gift tax.
How to Create a Totten Trust
Setting up a Totten trust entails contacting your financial institution and designating a beneficiary on your account. The bank will need to have the name of your chosen inheritor on file. After you pass away, your beneficiary will need evidence of your death, such as a death certificate, as well as personal identification, to claim the account.
Contact the Law Office of Antoinette Bone to learn more about how a Totten trust or payable-on-death account can fit into your overall legacy plan.
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