It’s the new year, and for many Americans, it’s a time for knuckling down and tackling things they’ve been putting off for far too long. For some, that might mean launching new diet plans and exercise routines.
But for others, it could mean getting their legal and financial affairs in order by doing their estate planning. Learn more below about an often overlooked estate planning vehicle — Totten trusts.
What they are
The name is a bit of a misnomer because these are not trusts in the literal sense. Totten trusts are payable on death bank accounts wherein the account holder names someone to receive the funds in the account upon the funder’s death.
Totten trusts got the name from an early 20th-century New York legal case, In re Totten, where the courts established that it was legal to open an account for another person. Other states then followed suit regarding these bank accounts.
What they do
Totten trusts are not subject to the probate process and also skip public scrutiny. They are ideal for anyone who wants to include a nontraditional beneficiary in their estate plan. That could be a lifelong friend, business partner or even children born out of the marital union.
Skipping probate allows the funds to transfer quickly to the named beneficiary. This gives them an infusion of cash at a time they may need it most, i.e., in the immediate aftermath of their loved one’s death.
Account funders remain in control
Another benefit of these trusts is that they remain under the full control of the account holder, who can close the accounts, change beneficiaries and add or withdraw funds at will up until they pass away. This is attractive to many estate planners because they don’t get locked into terms they may later wish to change.
