A Totten trust is a bank account in which the depositor places money in their own name “as trustee for” a designated individual. This arrangement ensures that the funds legally belong to the beneficiary, but the depositor retains control over the account until their death. The Totten trust can be terminated if all the funds are withdrawn, if the depositor revokes it during their lifetime, or if the beneficiary passes away. The term “Totten trust” originated from a 1904 court case in New York that established the validity of such trusts.
A Totten trust is a bank account where the depositor puts money in their own name “as trustee for” a specific beneficiary. This means that when the depositor dies, the beneficiary has the right to the money in the account. There are three ways a Totten trust can be revoked: the depositor withdraws all the money, the depositor writes a statement revoking the trust while alive, or the beneficiary dies before the depositor. The term “Totten trust” originated from a court case in New York in 1904 that allowed these types of trusts.
For instance, John opens a Totten trust bank account and designates his daughter, Sarah, as the beneficiary. John deposits $10,000 into the account. If John passes away before Sarah, she will inherit the $10,000 in the account. However, if Sarah dies before John, the trust is terminated, and the money will be transferred to John’s estate. This example demonstrates the functioning of a Totten trust, where John is the depositor and Sarah is the beneficiary. While John is alive, the money in the account belongs to him, but upon his death, it becomes Sarah’s property. In the event of Sarah’s demise before John, the trust is revoked, and the money reverts to John’s estate.
A Totten Trust, also known as a payable-on-death (POD) account, is a type of informal trust that allows an individual to designate a beneficiary who will receive the funds in the account upon the account holder’s death.
Unlike a formal trust, a Totten Trust does not require the services of an attorney or the creation of a legal document. It is established simply by opening a bank account and designating a beneficiary.
Yes, you can change the beneficiary of your Totten Trust at any time by notifying the bank or financial institution where the account is held. This can usually be done through a simple form or by providing written instructions.
In general, Totten Trusts are not easily contested. As long as the account holder is mentally competent and has the legal right to make decisions regarding the account, the beneficiary designation is typically honored.
In most cases, creditors cannot access funds in a Totten Trust during the account holder’s lifetime. However, upon the account holder’s death, the funds become part of their estate and may be subject to creditor claims.
Yes, one of the main advantages of a Totten Trust is that it allows assets to pass directly to the designated beneficiary without going through probate. This can save time and money for the beneficiaries.
Generally, Totten Trusts do not have significant tax implications. The funds in the account are not subject to income tax, but they may be included in the account holder’s estate for estate tax purposes.
Yes, a Totten Trust can be revoked by the account holder at any time. This can be done by closing the account or by providing written instructions to the bank or financial institution.
Yes, a minor can be named as a beneficiary of a Totten Trust. However, it is important to consider the laws of your jurisdiction regarding the management of assets for minors, as a guardian or custodian may need to be appointed.
Yes, a Totten Trust can be used to benefit a charitable organisation. By designating a charitable organisation as the beneficiary, the funds in the account will be transferred to the organisation upon the account holder’s death.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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