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What Is a Totten Trust?



A Totten trust is often called an account that is "payable on death." The trust is also depicted as an "arrangement for deposit accounts." It is a particular form of trust that is used in the United States. Most states now recognize the use of this type of trust.

In this type of trust, the settlor or creator of the trust puts funds in a bank account or deposits some other form of security with the specific instructions that upon that settlor's death, whatever funds or security that remain in the account are to pass directly to a certain designated beneficiary. By way of further example, a Totten trust is created when a depositor titles his or her account in the following format: "[Depositor name], in Trust for [Beneficiary Name]."

Why Is It Called a Totten Trust?

The name Totten trust comes from a 1904 case called the Matter of Totten that was decided by the New York Court of Appeals. This landmark decision established the legal practice of creating a trust that operates in this manner. Even though it does not technically meet the formal requirements for creating a trust, nor the formal requirements and procedures for establishing a valid will, the New York court still upheld the practice. The court held that, because the arrangement usually regarded a small monetary amount by a person with a fairly modest lifestyle who could not otherwise afford to create expensive legal tools for bequeathing affected property, the excused formalities for creation of this particular type of trust would be permitted. In fact, because of this modest lifestyle and the means of the typical creator of this type of trust, it is sometimes referred to as the "poor man's will."

How Is Probate Affected By a Totten Trust?

The monies or securities deposited in an account to create this particular type of trust are not subject to the probate process. Because the funds are held in a bank account, they are insured in the same way that any other deposit is insured, under the FDIC regulations. The trust's beneficiary has no ability to gain access to the bank account until the depositor or settlor's death. The beneficiary does not even need to be told or notified of the creation of the account or its existence. Because the Totten trust is contingent upon the settlor or creator's death, it is also often referred to as a tentative trust.

What Can Be Done to or With a Totten Trust?

A Totten trust can be revoked at any point by its creator, the settlor. The settlor accomplishes the revocation of the trust by closing the affected bank account or by executing a will that otherwise makes a disposition of the property that was held in the bank account. Additionally, creditors of the creator of the trust can access the funds held in the account during the creator's lifetime. If the designated beneficiary dies before the settlor, then the gift that forms the basis of the Totten trust lapses and is not usually saved by the applicable local anti-lapse statutes.