Totten Trust

A Totten Trust, also known as a payable-on-death (POD) account, is a type of trust where the assets are designated for a beneficiary, but the grantor retains control and the right to reclaim the assets. When the grantor dies, the assets pass to the beneficiary, but not until they have been included as part of the grantor's taxable estate.
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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

  1. 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.
  2. 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

  1. Investopedia on Totten Trust
  2. The Balance: Understanding Totten Trusts
  3. Nolo’s Guide on Totten Trusts

Suggested Books for Further Studies

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

Fundamentals of Totten Trust: Trust Basics Quiz

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

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