One of the first steps of setting up an estate plan is getting an account of the assets you have so you can decide who will receive which ones as their inheritance. As you’re making that list, you will likely notice bank, savings, and investment accounts. Those don’t necessarily have to be placed in your will. Instead, they can be handled through a Totten trust.
A Totten trust is also known as a payable-on-death designation. It’s a revocable trust that you set up with the financial institution. Once you set it up, it remains in effect until you pass away, close the account or change the designation.
What does the Totten trust do?
Once you set up the trust, you will be able to use the account as you normally would. The person you name in the Totten trust doesn’t have access to the account unless you name them as an account holder or authorized user.
When you pass away, the beneficiary can access the account without having to go through the probate process. They will typically have to bring a copy of your death certificate and their photo identification to gain access.
What else should you know?
The accounts that are governed by a Totten trust don’t need to be named anywhere else in the estate plan. Having them named in the will, for example, can lead to problems if you change the designation on the Totten trust but forget to change it in the will.
A Totten trust is only one part of a comprehensive estate plan. Getting the full plan together may be easier if you work with someone familiar with these matters.