A Totten Trust, often called a Payable-on-Death (POD) account, is one of the simplest ways to transfer money to someone after you pass away.
Despite the name, it is not a traditional trust document. There is no separate written trust agreement. Instead, it’s a bank account with a named beneficiary.
How Does a Totten Trust Work?
A Totten Trust is created when you open a bank account and title it:
“In Trust For” (ITF) or “Payable on Death” (POD) to a specific person.
For example:
Jane Smith ITF John Smith
or
Jane Smith POD John Smith
During your lifetime:
- You maintain complete control of the account
- You can deposit and withdraw funds
- You can change the beneficiary
- You can close the account
The beneficiary has no rights to the funds while you are alive.
What Happens When You Pass Away?
Upon your death:
- The money in the account transfers automatically to the named beneficiary
- The account bypasses probate
- The beneficiary typically only needs a death certificate and identification to claim the funds
This makes it a quick and efficient way to transfer bank account funds.
Why Is It Called a “Totten” Trust?
The name comes from a 1904 New York court case (Matter of Totten) that recognized this type of informal trust arrangement.
Today, POD accounts are recognized in all states, though specific procedures may vary slightly.
What Are the Benefits?
Avoids Probate
The funds transfer directly to the beneficiary without court involvement.
Simple to Create
No attorney required. You can set it up at your bank.
Flexible
You can change or revoke it at any time.
Low Cost
There are generally no setup fees.
What Are the Limitations?
While useful, Totten Trusts are limited:
- They apply only to the specific bank account listed
- They do not cover other assets
- They do not provide tax planning
- They do not offer asset protection
- They do not control how the beneficiary uses the money
- They do not protect funds from the beneficiary’s creditors
They are not a substitute for a comprehensive estate plan.
How Is It Different from a Living Trust?
A revocable living trust:
- Covers multiple types of assets
- Can include detailed distribution instructions
- Can plan for incapacity
- Provides broader estate planning benefits
A Totten Trust, by contrast, is simply a beneficiary designation for a single account.
Is a Totten Trust Right for You?
A Totten Trust (Payable-on-Death account) can be a smart, simple tool if you:
- Want to avoid probate for a bank account
- Have a straightforward estate
- Want an easy way to transfer funds
However, if you have multiple assets, minor beneficiaries, blended families, or tax planning concerns, a more comprehensive estate plan may be appropriate.
If you have questions about whether a POD account fits into your overall estate plan, consulting with an estate planning attorney can help ensure your wishes are properly carried out.
