Estate Planning Newsletter

• Custodial Accounts Held for Minors
  Minors have no legal capacity to manage property. Thus, transferring property and other assets to minors can be problematic. For example, parents or other adults may wish to convey a small amount of property to a minor without investing... Read more.
• Tax Treatment of Long-Term Care Insurance Premiums and Benefits
  People are living longer, but for many a reality of aging is that at some point they are unable to care for themselves. The costs of retirement homes and in-home care are rising, generating concerns for many on how to pay for the cost... Read more.
• The Reciprocal Trust Doctrine Can Trap the Unwary
  Estate planning attorneys utilize a number of different estate planning techniques to accomplish the goals of their clients and sometimes to minimize transfer taxes. One common estate planning technique is the transfer of assets into an... Read more.
• Application of a Gift Tax
  A gift tax is a tax on the privilege of making gifts to others while the taxpayer is still living. The gift tax supplements the estate tax, which taxes gifts made upon death. The gift tax was created to frustrate the attempts of those... Read more.

• The Build Back Better Act Requires Estate Planners’ Immediate Attention
• 5 things to know before writing your own will—without spending a fortune, according to an estate planning expert
• Capital Gains Tax Hike And More May Come Just After Labor Day
• 10 Estate Planning Mistakes To Avoid
• Self-Employed? Here’s How to Plan Your Finances

Revocable Bank Deposit Totten Trusts

A decedent’s assets may be transferred upon their death to their heirs or other beneficiaries through probate. “Probate” is the legal process by which a court determines who receives a decedent’s assets under their will or, if there is no will, under the applicable state intestate succession laws. In some states, the probate process may be both costly and time consuming, involving court fees, commissions for estate representatives, attorneys’ fees and/or appraiser’s fees, etc. Another potential disadvantage of probate is that the process is a matter of public record; many would prefer that the details of the administration of their estate, including information on their assets and beneficiaries, be kept private.

To avoid the costs and potential time delays associated with the probate process, and to keep their estate administration private, property owners sometimes seek ways to distribute their assets outside of probate. Depending upon the jurisdiction, methods of achieving a non-probate transfer of assets include holding title to an asset as joint tenants with right of survivorship, establishing a revocable or irrevocable trust, or creating a contract with payable-on-death provisions or a multiple-party bank account, such as a “Totten trust.”

Totten Trusts in General

Totten trusts are also referred to as “savings account trusts” and are accepted in a large majority of jurisdictions. A Totten trust is not generally considered to be a true “trust” at all. Rather, these accounts are a specific type of multiple-party bank account which function as a “payable-on-death” (P.O.D.) savings account.

A Totten trust savings account is considered to be a “non-probate” asset. That is, the Totten trust account is a relatively simple way to pass assets at death while simultaneously avoiding probate. Further, rather than setting up Totten trusts in addition to a will, some individuals may establish Totten trusts as “will substitutes.” However, there are specific procedures, rights and limitations that should be considered.

Establishing a Totten Trust and Rights of Trustee

Generally, in order to establish a Totten trust, the settlor or “grantor” of the account holds the account as a trustee for a named beneficiary (or beneficiaries). For example, the grantor/trustee makes deposits in a savings account in the name of “O as trustee for A, a beneficiary.” Once established, the trustee retains several rights including:

• Withdrawing funds;
• Depositing additional funds; and/or
• Amending the terms of the account.

The grantor has significant power to control the trust, in whatever way they choose, during their lifetime. However, once the grantor dies, provided they have not otherwise revoked the rights of the beneficiary, the contents are automatically transferred to the named beneficiary.

Contingent Rights of Totten Trust Beneficiary

The beneficiary of a Totten trust theoretically owns the account. However, ownership does not occur until the grantor dies. As such, the beneficiary’s rights are not vested while the grantor is still alive. Since the beneficiary has no immediate rights in the Totten trust, the beneficiary’s creditors cannot attach the account to satisfy the beneficiary’s debts during the grantor’s lifetime.

Grantor’s Power to Revoke a Totten Trust

The grantor of a Totten trust may revoke the trust at any time during their life. Revoking the trust extinguishes the contingent rights of the named beneficiary. The grantor may revoke the trust either by:

• Spending all of the money in the account; or
• Amending the terms of the account to name another person as the beneficiary.

Advantages of a Totten Trust over a Joint Tenancy

A Totten trust is just one method of transferring assets at death while avoiding probate. A similar and common alternative method is to establish a “joint tenancy” bank account with the right of survivorship. In general, under a joint tenancy, each party takes equal title to the account, has an equal and undivided interest in the funds and retains the right of survivorship on death of one party. On the death of one joint tenant, the assets in the joint tenancy account pass by right of survivorship to the surviving joint tenant, without the need for probate administration.

Unlike a Totten trust, the named beneficiary’s rights are immediately vested in the joint tenancy, rather than being contingent upon the death of the grantor. The beneficiary and the grantor become “co-owners” of the joint tenancy account. This can have adverse consequences for the original grantor due to the following:

• Each co-owner has the right to draw on the account at any time; and
• Creditors of either co-owner may reach the account.

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