Totten Trust

Definition

A Totten Trust, also referred to as a Payable-on-Death (POD) account, is a type of trust where the grantor, typically the account holder, designates a beneficiary to receive specific assets upon the grantor’s death. Importantly, the grantor retains control over the assets and can reclaim or revoke them at any time during their lifetime. The designated assets only transfer to the beneficiary upon the grantor’s death, and the assets remain part of the grantor’s taxable estate until that time.

Examples

Bank Savings Account: John opens a savings account and lists his daughter, Emma, as the beneficiary via a Totten Trust. John maintains full control over the account during his life. Upon John’s death, Emma receives the funds directly.
Certificate of Deposit (CD): Sarah purchases a CD and names her brother, Michael, as the beneficiary. While Sarah is alive, she can change the beneficiary or cash out the CD. When Sarah dies, Michael automatically inherits the CD balance.

Frequently Asked Questions

Q1: Can a Totten Trust be revoked?
A1: Yes, the grantor retains the right to revoke or alter the terms of the Totten Trust at any time before their death.

Q2: How are the assets in a Totten Trust taxed?
A2: The assets are part of the grantor’s taxable estate and may be subject to estate taxes upon the grantor’s death.

Q3: Does the beneficiary have any rights to the assets while the grantor is alive?
A3: No, the beneficiary has no rights to the trust’s assets until the grantor’s death.

Q4: What happens if the grantor withdraws all the funds from a Totten Trust?
A4: If the grantor withdraws all the funds, the Totten Trust is effectively dissolved, and the beneficiary will not receive any assets.

Q5: Is a Totten Trust a suitable tool for avoiding probate?
A5: Yes, one of the main advantages of a Totten Trust is that it allows the assets to bypass probate and directly transfer to the beneficiary.

Grantor: The person who creates the trust and retains control over the assets within it.
Beneficiary: The person designated to receive the assets upon the grantor’s death.
Revocable Trust: A trust that can be amended or terminated by the grantor during their lifetime.
Estate Taxes: Taxes on the transfer of the estate of a deceased person.
Probate: The judicial process where a will is proved in a court and accepted as a valid public document.

Online References

Suggested Books for Further Studies

Estate Planning Basics by Denis Clifford
Living Trusts for Everyone by Ronald Farrington Sharp
The Complete Book of Trusts by Martin M. Shenkman, CPA, MBA, JD

Fundamentals of Totten Trust: Trust Basics Quiz

### What is a Totten Trust also known as? - [ ] Irrevocable Trust - [ ] Testamentary Trust - [ ] Charitable Trust - [x] Payable-on-Death (POD) account > **Explanation:** A Totten Trust is commonly known as a Payable-on-Death (POD) account, where the account's assets are designated to a beneficiary but retained under the control of the grantor. ### Who retains control of the assets within a Totten Trust during the grantor's lifetime? - [x] The grantor - [ ] The beneficiary - [ ] A trustee - [ ] A legal guardian > **Explanation:** The grantor retains control and can reclaim the assets within a Totten Trust during their lifetime. ### When do the assets in a Totten Trust pass to the beneficiary? - [ ] Upon setting up the trust - [ ] When the trust reaches a maturity date - [x] Upon the grantor's death - [ ] After a specified period > **Explanation:** The assets pass to the beneficiary upon the grantor's death, not before. ### Can a Totten Trust be revoked by the grantor? - [x] Yes, it can be revoked any time - [ ] No, it is irrevocable - [ ] Only with the beneficiary's consent - [ ] Only under court order > **Explanation:** The grantor retains the right to revoke the Totten Trust at any time during their lifetime. ### What is the primary advantage of a Totten Trust regarding probate? - [ ] It avoids all types of taxes - [ ] It allows legal disputes easily - [x] It allows the assets to bypass probate - [ ] It guarantees immunity from creditors > **Explanation:** One of the primary advantages is that it allows the assets to bypass probate, enabling a quicker transfer to the beneficiary. ### Are the assets within a Totten Trust part of the grantor's taxable estate? - [x] Yes, they are included - [ ] No, they are excluded - [ ] Only if other estate planning tools are not used - [ ] Only above certain thresholds > **Explanation:** Assets within a Totten Trust are included in the grantor's taxable estate and subject to estate taxes. ### Can the grantor change the beneficiary of a Totten Trust? - [x] Yes, the grantor can change the beneficiary - [ ] No, the beneficiary cannot be changed - [ ] Only with a court order - [ ] Only once the trust matures > **Explanation:** The grantor retains the authority to change the beneficiary of the Totten Trust at any time. ### What types of accounts can be Totten Trusts? - [ ] Only checking accounts - [ ] Only investment accounts - [x] Savings accounts and CDs - [ ] Only retirement accounts > **Explanation:** Types of accounts that can be used as Totten Trusts include savings accounts and certificates of deposit (CDs). ### Does the beneficiary have immediate rights to the Totten Trust assets? - [ ] Yes, immediately - [ ] Only after ten years - [ ] Only with grantor's consent - [x] No, only upon grantor's death > **Explanation:** The beneficiary does not have any rights to the assets until the grantor's death. ### How is a Totten Trust beneficial for beneficiaries? - [x] It provides direct access to assets without probate delay - [ ] It only offers higher returns than mutual funds - [ ] It ensures tax exemption - [ ] It guarantees sustained income > **Explanation:** The main benefit is direct and immediate access to the assets without the delays associated with probate.

Thank you for exploring the concept of the Totten Trust and challenging yourself with our quiz to strengthen your knowledge in estate planning!