Even a simple trust can help your estate avoid probate. While most trusts are bound by similar rules and restrictions, there some exceptions. The “Totten trust,” for instance, is not really a trust in the typical sense of the word—it is, instead, a payable-on-death account used to transfer funds directly to an heir once the original owner dies. 

California Estate Planning Lawyer Kavesh Minor & Otis

The Totten Trust

Totten trusts are named after a century-old court decision. In 1904, a New York court held that an individual may establish a bank account-based trust. Such a trust will have a designated heir, who will inherit the proceeds of the account once its owner dies.

When a Totten trust is established, a trustee—often the same person who opens the account—retains full control of the funds within and can choose to revoke or cancel the trust at any time.

After the account owner dies, the trust fund will be disbursed directly to the named inheritor.

Who Might Need a Totten Trust

While a Totten trust is not a typical trust, it is still widely used by California residents. That is because Totten trusts provide an easy way to transfer money to an heir.

Setting up a Totten trust is usually a simple, straightforward process. Your estate might benefit from a Totten trust if you have substantive cash assets which you plan to pass on to an heir or beneficiary.

If your Totten trust is part of a comprehensive estate plan, it can also help spare your loved ones from dealing with probate.

Why People Use Totten Trusts to Avoid Probate

When funds are transferred through a will, they may be subjected to probate proceedings. A Totten trust, on the other hand, facilitates wealth transfers outside of probate. In fact, many people use instruments like the Totten trust for the sole purpose of avoiding probate.

That is because California’s probate process can be problematic: not only is going to court difficult for grieving families, it can also be expensive. Probate estates may be challenged by disgruntled heirs or estranged family members, and since probate courts are public courts, everything that happens within will be a matter of public record.

The Disadvantages of Totten Trusts

Totten trusts, unlike other types of revocable living trusts, only accept cash deposits. So, if your estate includes valuable non-cash assets, simply establishing a Totten trust will do little to keep your loved ones out of probate.

If your estate includes valuable personal possessions, investment portfolios, or real property—a family home, a business, or a rental unit—you may wish to consider establishing a standard revocable living trust.

A revocable living trust, like a Totten trust, lets you transfer assets in and out of the trust at will. You can also cancel a revocable living trust at any point, without penalty. However, revocable living trusts are far more flexible than Totten trusts. Not only can you deposit non-cash assets, you can make inheritances conditional. You might, for instance, specify that your children’s trust be used only for higher education, or stipulate that they not begin receiving disbursements until they have reached a certain age.

Since Totten trusts disburse immediately upon your death, they lack long-term flexibility and deprive you of the ability to control how your assets are used after you die.

How an Estate Planning Attorney Can Help

Totten trusts are advantageous, especially for people who have significant cash assets or cash-heavy estates. Your estate plan could well benefit from the inclusion of a Totten trust. However, a Totten trust should be considered part of a bigger, better, and more comprehensive estate plan. This type of trust can help you easily pass money to an heir, but it will not protect the rest of your hard-earned assets.

An estate planning attorney can help review your assets. They will custom-build a plan intended to keep your family safe from probate while minimizing their tax obligations and giving you maximum control of how your estate assets will be used after you die. In many cases, your lawyer can leverage your estate plan to save you money while you are still alive.

Do You Need To Speak With An Attorney About Estate Planning?

If you need to speak with an experienced estate planning lawyer please contact us online or call us directly at 800.756.5596 to claim your space at one of our free, informative seminars. Your attendance will qualify you for a discount for our estate planning services. We proudly serve clients throughout California with offices in Torrance, Newport Beach, Orange, Woodland Hills and Pasadena.

 

Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.