Using a Totten trust is one way to pass on money held in brokerage or bank accounts to your heirs. Totten trusts are also referred to as payable upon death accounts. Most accounts are created when the owner sets up the account “in trust for” the beneficiary. Different financial institutions commonly have varying requirements for what language should be included to create the Totten trust.
Discuss Your Estate Plan With a Syracuse Lawyer
Would you like to learn more about how to pass on your assets to your heirs using a Totten trust? If so, the skilled estate planning lawyers at CDH Law PLLC are here to help. Our legal team has extensive experience using Totten trusts and other trusts to create the most comprehensive estate plans for our clients. Contact us today to learn more about how we can help you prepare for the future by creating an estate plan.
What Is a Totten Trust?
A Totten trust is essentially a payable on death account you can use to transfer assets from your account to your beneficiary. You can create a Totten trust for most financial accounts that hold cash, such as stocks, bonds, U.S. Treasury securities, or bank accounts. One of the key benefits of creating a Totten trust is to avoid the formal probate process. Using a Totten trust can also help your surviving loved ones pay for your funeral expenses.
An account owner can open an account under his or her name to benefit a named beneficiary. The account owner has the right to use the account during his or her life fully. For example, the account owner can add or withdraw funds from the account, change the account’s beneficiaries, or close the account at any time. During the account owner’s lifetime, the beneficiary does not have any legal authority to use the funds in the account.
Benefits of Creating a Totten Trust
When the account owner passes away, the funds in the account will automatically transfer to the beneficiary. The beneficiary will not have to go through the formal probate process. Instead, he or she will automatically receive ownership of the assets upon the owner’s death. Creating a Totten trust saves the beneficiary a significant amount of time and money because he or she will not have to wait for the probate court to release the assets in the account.
The assets will be insured by the FDIC up to $100,000 for each named beneficiary. The assets will be insured separately from any other account you own at the same institution. Many families use Totten trusts as a way to pay for the decedent’s funeral expenses. By using a Totten trust, the beneficiary can avoid using his or her funds to pay for the decedent’s burial and funeral expenses. Setting up one can help your surviving family have access to funds immediately after your death, which can help them significantly while they are in the grieving process.
Totten Trusts vs. Other Trusts
A Totten trust is similar to a formal trust in some ways. In a Totten trust, assets held in the account transfer automatically to the beneficiary. The funds transfer outside of the estate, as with a formal trust. However, there are several differences between Totten trusts and formal trusts. With a Totten trust, there is no trustee responsible for managing the assets in the account.
Other types of trusts, such as an irrevocable trust, are more effective for protecting assets. The assets will probably be subject to a creditor’s claims. For example, if the account owner faces a lawsuit and loses, the plaintiff would have access to the funds in the Totten trust. On the contrary, when funds are transferred into a well-structured irrevocable trust, the funds will be protected from the decedent’s creditors.
With a Totten trust, creditors have a right to be paid first with assets in the trust before the beneficiary can receive any remaining friends from the account. If the decedent dies with significant debts or is insolvent when they die, there is a chance that the beneficiary will not receive any of the funds in the Totten trust or may receive a reduced amount.
Establishing a Totten Trust
Establishing a Totten trust is a relatively simple process. You will need to open an account at a financial institution, such as a credit union, bank, or stock brokerage company. No need to create the account under your name for the benefit of your beneficiary. Suppose you want to open an account for the benefit of your partner. In that case, you will need to name your significant other as the beneficiary on the account using the language “in trust for.” Your significant other will not have any right to use the funds in the account before you pass away. Once you pass away, your significant other will become the owner of the assets in the account automatically.
After creating one, you must keep your beneficiary designation updated. Forgetting about the beneficiary designation is easy, especially when we are busy with day-to-day activities. However, we have seen cases in which an ex-spouse ends up inheriting the money in an account because the owner forgot to change the beneficiary designation after their divorce. Whenever you experience a significant life change, it’s wise to review your estate plan, including any beneficiary designations or accounts that you’ve created.
Contact a Syracuse Totten Trust Lawyer
There are many effective estate planning tools you can use to protect your assets and ensure your loved ones receive them after you pass away. Creating a Totten trust can make it easier for your loved ones to access money in your financial accounts. Whether you would like to create an estate plan or update your estate plan, we recommend contacting CDH Law PLLC to schedule a consultation with one of our skilled estate planning lawyers.