Monday, October 12, 2009

Bank "Trust" Accounts


Banks have a type of "trust" account which many people use to pass the account to a beneficiary when the account holder passes away.

The technical term for this type of account is a "Totten Trust". It is not a true trust in the legal sense of the word "Trust", because it does not set up a separate entity with a trustee in charge of the Trust.

A better description and more accurate term is to call these accounts "Pay on Death Accounts". This is because the account is designed to "pay" a named beneficiary "on death" of the account owner.

The account is an asset of the account holder and can be used as the account holder pleases until they die. Upon death, it goes to the person named.

It avoids probate, so it is not subject to either the account holder's will or their intestate estate.

The words "pay on death", "in trust for", and "a trust for" are often abbreviated in the account title; for example:

John Smith P.O.D. Mary Smith

John Smith I.T.F. Mary Smith

John Smith A.T.F. Mary Smith

The Totten Trust is a helpful tool in estate planning, but in most cases, should not be used as the exclusive estate plan device for several reasons:

* Many assets may not be owned in this manner.

* It also does not provide alternatives, such as what happens if the beneficiary dies before the account holder.

* It does not provide for estate tax avoidance or minimization of the potential estate tax.

* In a community property state such as California, if the account is a community property asset, and the beneficiary is not the surviving spouse, the distribution may be subject to challenge by the surviving spouse.

There are other potential problems with the use of a Totten Trust, and therefore, it is always best to consult with a qualified estate planning attorney before using a Totten Trust, especially as the primary estate planning tool.

If you have other questions about this subject please visit my website at:

or email me at:

Attorney at Law

This blog is intended for infomational and educational purposes only, and is not a substitute for legal advice from a qualified estate planning attorney in your jurisdiction.

No comments:

Post a Comment