Legal Definitions - Totten trust

A Totten trust is a specific type of bank account where the account holder designates themselves as a trustee for a named beneficiary. While the account holder is alive, they maintain complete control over the funds, including the ability to deposit, withdraw, or close the account. The unique feature of a Totten trust is that upon the death of the account holder, the funds automatically transfer directly to the named beneficiary, bypassing the often lengthy and public legal process called probate. This arrangement is also known as a tentative trust because the account holder can revoke or change the beneficiary at any time during their lifetime.

The account holder can revoke a Totten trust in several ways:

• By withdrawing all the money from the account.
• By explicitly stating in writing, during their lifetime, their intention to revoke the trust.
• If the named beneficiary dies before the account holder.

Here are some examples illustrating a Totten trust:

• Example 1: Grandparent's Gift to a Grandchild

  Eleanor wants to leave a sum of money for her granddaughter, Maya, without it having to go through the probate process after Eleanor's death. She opens a savings account titled "Eleanor Vance, as trustee for Maya Vance." Throughout her life, Eleanor can deposit more money, withdraw funds if she needs them, or even change the beneficiary. If Eleanor passes away with funds still in the account, the money will automatically be transferred directly to Maya, bypassing Eleanor's will and the probate court.

• Example 2: Parent Providing Immediate Funds for an Adult Child

  David wants to ensure his adult son, Michael, has immediate access to funds for living expenses shortly after David's death, without waiting for his estate to be settled through probate. David sets up a checking account designated as "David Chen, as trustee for Michael Chen." This is a Totten trust. David retains full control over the account during his lifetime. Upon David's death, Michael can access these funds directly and promptly, as they are not considered part of David's probate estate.

• Example 3: Flexible Donation to a Charity

  The Millers want to leave a specific amount to their local animal shelter, "Paws & Claws," but they also want the flexibility to use the funds themselves if an unexpected financial emergency arises, or to change their mind about the beneficiary. They open a joint savings account titled "John and Susan Miller, as trustees for Paws & Claws Animal Shelter." This arrangement creates a Totten trust. The Millers maintain complete control over the funds throughout their lives. If both Millers pass away and the account is still active, the money will go directly to Paws & Claws. However, they could choose to withdraw the funds for personal use or designate a different charity or individual at any point before their deaths.