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San Jose Family Atttorney speaks about Totten Trusts

San Jose Divorce Attorney

There many ways for a person to pass their estate to their children at their death. The most commonly known way is through a Will. A Will is usually a formal document outlining how a person wants to distribute all their assets after passing away. The document has many requirements to be valid, such as signatures of witnesses and notaries, etc. (Some exceptions apply). In California, a Will needs to go through the “probate” process which may delay the distribution of the estate by many months. Such a delay can be detrimental because estate debts will not wait for the court to examine a Will, they will come due much sooner than that.

This delay of transfer of money can be partially avoided by a “Totten Trust.” A Totten Trust is also known as a “Payable on Death” Account or POD for short. A typical POD account is a bank account. The owner of the account (often called the Settlor) names a beneficiary to the account or a person who will receive all its contents upon the owner’s death. During the owner’s life, they can use the account just like a regular bank account. They are allowed to withdraw money, deposit money, or even close the account. The beneficiary has no actual right to the money while the owner lives. The only time the beneficiary has any rights is after the owner passes away. Therefore beneficiary cannot make withdrawals or block the owner from doing the same while the owner is alive.

A Totten Trust or POD account is a useful tool because the account does not actually have to be included in the Will to take effect. For example, the owner can create a Totten Trust for the executor of their Will. That means the executor can probably have access to the money in the account quickly and pay off the estate debts while the official Will is being examined by the court. The quick access to funds may mean the difference between paying an estate debt or a debtor starting foreclosure proceedings due to non-payment while the Will is being examined.

A Totten Trust or POD Account makes sense if the owner has a regular bank account where they keep very liquid funds. However, Totten Trusts are limited in how beneficiaries are named (usually only one is allowed) and cannot hold real assets (such as land or cars). Therefore a Totten Trust would not be good way to distribute money to several people. A Totten Trust may have some tax consequences which can be avoided by other Trust instruments. A Totten Trust should really be used in a narrow fashion to transfer specific bank accounts. Please contact our offices to setup a consultation to discuss a Totten Trust or other estate plans that may work for you.