A Totten trust, also known as a payable-on-death (POD) account or an informal trust, is a type of bank account that you can set up to transfer funds to a designated beneficiary upon your death. Accounts that are covered by this type of trust shouldn’t be included in a will or any other trusts.
A Totten trust is established when you open a bank account in your name as the trustee, with the understanding that the account is “in trust for” (ITF) or POD to a specified beneficiary. You retain control over the account and its funds during your lifetime.
How Does A Totten Trust Work?
You can deposit or withdraw funds, change the beneficiary or even close the account without the beneficiary’s knowledge or consent. You continue to have full control and use of the account, but the beneficiary doesn’t have access to it.
The funds in the Totten trust pass directly to the designated beneficiary, bypassing the probate process when you die. This can save time and expenses associated with probate and keep the account’s details private.
The beneficiary needs to provide the bank with a death certificate and proof of their identity to claim the funds. Once the bank verifies this information, it releases the funds in the account to the beneficiary.
Totten trusts are not suitable for every situation or for managing complex estates. It’s best to understand how this type of trust can work with your other estate planning components so you can help ensure that your loved ones are cared for after you’re gone.