A Totten trust, often called a “poor man’s trust,” provides a simple and cost-effective way to transfer bank accounts or certificates of deposit to beneficiaries upon death.
Unlike traditional trusts that require complex documentation, this informal trust arrangement helps avoid probate while maintaining the grantor’s control during their lifetime. Here are three essential elements required to establish a valid Totten trust:
1. Proper account setup
The account must be established at a financial institution with specific language identifying it as a trust arrangement. The title should include phrases like “In Trust For” (ITF), “Payable on Death To” (POD) or “As Trustee For” (ATF). This clear designation is crucial – without proper labeling, the arrangement may not be recognized as a valid Totten trust, potentially causing the assets to go through probate instead of directly to beneficiaries. The account can hold various types of deposits, including savings accounts, checking accounts, money market accounts and certificates of deposit.
2. Grantor as trustee
The person creating the trust (the grantor) must name themselves as trustee of the account. This dual role as both grantor and trustee gives them complete control over the funds during their lifetime. They can withdraw money, close the account, change beneficiaries or use the funds for any purpose without restriction or permission from beneficiaries. This flexibility distinguishes Totten trusts from other trust arrangements where control typically transfers to a separate trustee.
3. Named beneficiary designation
The trust must designate one or more specific beneficiaries who will receive the account assets upon the grantor’s death. The beneficiary can be any individual or entity, but they must be clearly identified in the account documentation. Unlike traditional trusts, beneficiaries have no rights to or control over the funds while the grantor is alive – their interest only becomes active upon the grantor’s death.
While Totten trusts offer a straightforward way to transfer assets, they only work with financial accounts – they cannot be used for real estate or other types of property. Before establishing a Totten trust, seeking legal guidance can help ensure proper setup and understand how it fits into your overall estate plan.