Even the simplest trust will keep an estate out of probate. While most trusts come with similar guidelines and limitations, there are a few exceptions. Totten trusts, for instance, aren’t really trusts in the strictest sense. Rather, they’re POD or payable-on-death accounts that transfer money directly to heirs once the owner passes away. In this guide, readers will learn about totten trusts, their benefits, and their exclusions.
The totten trust is named after a court decision from more than a century ago. Back in 1904, New York’s courts ruled that individuals could establish trusts based on bank accounts. These trusts have designated heirs, who will receive the account’s proceeds upon the owner’s death.
When totten trusts are established, the trustee—who is usually the person who opened the account—maintains control of the account’s funds and can cancel the trust at any time. After the owner’s passing, the funds are transferred directly to the chosen heir.
Benefits of a Totten Trust
While totten trusts aren’t like other trusts, they’re commonly used because they make it easier to transfer money to heirs. Setting up such a trust is straightforward and simple, and your estate may benefit if you wish to pass a substantial amount of cash to a beneficiary. When these trusts are included in an overall estate plan, they can spare families the hassle and frustration of probate.
When money is bequeathed to someone in a will, it must first go through probate. Totten trusts, conversely, allow for the easier transfer of wealth without the court’s intervention. Many estate holders use totten trusts and similar instruments to keep their cases out of probate.
The state’s probate process is challenging. Not only is it hard for a grieving family to go to court, but it is also expensive. A probated estate may be disputed by estranged and disinherited relatives, and everything that happens during these cases becomes part of the public record. These and other reasons are why so many people are using totten trusts to plan their estates and help their families avoid the hassle of probate.
Things to Consider About Totten Trusts
Unlike other revocable trusts, only cash can be deposited into a totten trust. If you own significant non-cash assets, using such a trust won’t keep your estate out of court. For those whose estates include investment portfolios, valuable possessions, and property, it may be best to establish a revocable living trust instead.
How to Set Up a Totten Trust
Totten trusts are beneficial, especially for those with substantial cash reserves. Estate plans will typically benefit from the use of these trust, but they’re only part of a comprehensive plan. An estate planning lawyer can help build a plan that keeps your family out of probate while minimizing tax liability and giving you greater control over how assets are used.
If you’re interested in opening a totten trust account, contact a New York estate planning lawyer today.