A Totten trust, also called a payable-on-death account or POD account, is a simple bank account arrangement that lets you name beneficiaries who receive whatever remains in the account when you die. You maintain complete control and access during your lifetime, and the funds transfer automatically to your designated beneficiaries upon death without going through probate. This straightforward probate avoidance tool costs nothing to set up and works for checking accounts, savings accounts, certificates of deposit, and money market accounts.
Our friends at Yee Law Group Inc. recommend payable-on-death designations as one of the easiest ways to transfer bank accounts to loved ones. A trust attorney can help you coordinate POD accounts with your overall estate plan to avoid conflicts between beneficiary designations and will provisions.
How Payable-on-Death Accounts Work
When you open a POD account or add a payable-on-death designation to an existing account, you complete a simple form provided by your bank. The form names one or more beneficiaries who will receive the account proceeds after your death.
During your lifetime, beneficiaries have no rights to the account. They cannot withdraw funds, check the balance, or make any claims on the money. You retain complete ownership and control just as you would with any regular account.
When you die, the beneficiary presents a death certificate to the bank. The institution verifies the death, confirms the beneficiary’s identity, and transfers the funds directly to the beneficiary. This happens outside of probate court, typically within days or weeks rather than the months probate requires.
The Origin Of The Term “Totten Trust”
The name comes from a 1904 New York case, In re Totten, which established the legal validity of these arrangements. Although called a “trust,” a Totten trust is not a formal trust in the traditional sense requiring separate trust documents or trust administration.
The trust terminology simply describes the legal relationship. You hold the account “in trust for” your named beneficiary, but this is really just a revocable beneficiary designation rather than an actual trust structure.
Many banks now use the clearer term “payable-on-death” rather than “Totten trust,” though both terms describe the same arrangement. Some institutions also use “transfer-on-death” for similar designations on securities accounts.
Setting Up POD Designations
Most banks offer POD designations for various account types. You simply ask to add beneficiaries to your existing account or indicate you want a POD account when opening a new one.
The bank provides a beneficiary designation form where you list each beneficiary’s full legal name, Social Security number, address, and relationship to you. This information helps the bank locate beneficiaries after your death and verify their identities.
There’s typically no fee for adding POD beneficiaries. The designation becomes part of your account agreement and appears on account statements showing the beneficiaries on record.
You can change beneficiaries anytime by submitting a new form to the bank. The most recent properly executed beneficiary designation controls, superseding all previous designations.
Advantages Of POD Accounts
Probate avoidance is the primary benefit. Bank accounts titled in your individual name normally go through probate, requiring court proceedings before funds can be distributed. POD accounts bypass this process entirely.
Speed of transfer helps beneficiaries access funds quickly for immediate expenses like funeral costs, bills, or living expenses. Rather than waiting months or years for probate to conclude, beneficiaries can typically access POD accounts within weeks.
Privacy is maintained since POD transfers don’t become part of public probate records. The account and beneficiary information remain between you, the bank, and the beneficiary.
Cost savings benefit your estate since POD transfers don’t incur probate fees, court costs, or attorney fees associated with probating bank accounts. The savings can be significant for accounts with substantial balances.
POD account advantages:
- Complete control during your lifetime
- No setup costs or ongoing fees
- Immediate transfer upon death
- Avoids probate court proceedings
- Maintains privacy of financial information
- Simple to establish and modify
- Works with multiple account types
Flexibility allows you to name multiple beneficiaries and specify how proceeds should be divided. You might designate three children to share equally or specify different percentages for different beneficiaries.
How Multiple Beneficiaries Work
If you name several beneficiaries without specifying shares, they typically receive equal portions. Three named beneficiaries each get one-third of the account balance.
You can designate unequal shares by specifying percentages on the beneficiary form. You might give 50% to one child and 25% to each of two others, or any division you prefer.
All beneficiaries must be living when you die for them to receive their shares. If one dies before you, their share typically goes to the surviving beneficiaries unless you’ve named contingent beneficiaries or your state law provides differently.
Primary And Contingent Beneficiaries
You can name backup beneficiaries who inherit only if your primary beneficiaries predecease you. This prevents the account from passing through your estate if your first choice cannot inherit.
For example, you might name your spouse as primary beneficiary with your children as contingent beneficiaries. If your spouse survives you, they receive the account. If your spouse predeceases you, your children receive it instead.
Without contingent beneficiaries, if all primary beneficiaries die before you, the account loses its POD status and must go through probate as part of your estate.
What Happens To POD Accounts In Probate
POD accounts that transfer successfully to living beneficiaries avoid probate completely. However, they might be considered when determining whether your estate qualifies for simplified probate procedures.
Some states add POD account values to other assets when calculating whether an estate exceeds the threshold for summary probate procedures. This doesn’t mean the accounts go through probate, but they might affect your estate’s overall classification.
Creditors generally cannot reach POD accounts to satisfy your debts. The funds pass directly to beneficiaries outside your estate, protecting them from most creditor claims. However, fraudulent transfers made shortly before death to avoid creditors might be challenged.
POD Accounts And Estate Planning
POD designations should coordinate with your overall estate plan. If your will divides assets equally among three children but large POD accounts name only one child, you haven’t achieved equal distribution.
Calculate total inheritance each beneficiary receives from all sources including POD accounts, life insurance, retirement accounts, and probate assets passing through your will. This comprehensive view shows whether your complete plan accomplishes intended distribution.
Consider the timing of access to funds. POD accounts give beneficiaries immediate control over sometimes substantial sums. If beneficiaries are minors, have addiction issues, or are financially irresponsible, direct access might not serve their best interests. Trusts provide more control in these situations.
Differences From Joint Accounts
Joint accounts and POD accounts are fundamentally different. Joint account holders have current access and ownership rights. They can withdraw funds, close accounts, or add and remove owners.
POD beneficiaries have only future rights that vest upon your death. They cannot touch the account while you’re alive and you can change beneficiaries without their knowledge or consent.
Adding someone as a joint owner makes an immediate gift of partial ownership. Adding a POD beneficiary makes no current gift since they receive nothing until your death.
Limitations To Consider
POD designations work only for accounts at financial institutions. You cannot use this approach for real estate, vehicles, or other property requiring different transfer mechanisms.
Complexity increases if you want different beneficiaries for different accounts or if you have numerous accounts at various banks. Tracking all designations and keeping them current requires attention.
Minor beneficiaries cannot receive POD accounts directly. The bank will require court appointment of a guardian or conservator to receive the funds on the minor’s behalf, defeating the probate avoidance purpose.
POD accounts don’t help during incapacity. If you become unable to manage your affairs, no one automatically has authority to access POD accounts. You need durable powers of attorney or trusts to address incapacity planning.
Coordination With Trusts
Some people name their revocable living trusts as POD beneficiaries. This funnels bank account funds into the trust upon death for distribution according to trust terms.
This approach makes sense when you want trust provisions to govern distribution rather than outright immediate transfer to beneficiaries. However, it adds complexity compared to simply transferring the account into the trust’s name during your lifetime.
Keeping Records And Reviewing Designations
Maintain copies of all POD beneficiary designation forms. Banks sometimes lose records, and your copies provide proof of your intentions.
Review all POD designations every few years and after major life events like marriages, divorces, births, or deaths. Outdated designations send money to ex-spouses, deceased individuals, or people you no longer want to benefit.
According to the Consumer Financial Protection Bureau, keeping beneficiary information current is one of the most important but frequently overlooked aspects of financial planning.
Simple But Powerful Planning
POD accounts demonstrate that effective estate planning doesn’t always require expensive or complicated strategies. A simple beneficiary designation form accomplishes probate avoidance and rapid transfer to loved ones.
We help clients evaluate whether POD accounts fit their situations and how to coordinate these designations with comprehensive estate plans. Your bank accounts represent accessible wealth that can pass efficiently to beneficiaries through proper planning. Take a few minutes to add POD designations to accounts that don’t have them and review existing designations to verify they still reflect your current wishes.