There are many different trusts used in the field of estate planning. We endeavor to provide explanations in some of our posts, and we will look at the Totten trust in this one.
Payable on Death Account
Back in 1904, there was a court case that was decided by the New York Court of Appeals called the Matter of Totten. Up until that time, you could not open up a bank account with a beneficiary that would inherit the account after your death.
The court decided that there was no legal ground for this prohibition. This opened the door for the Totten trust. They are still used today, but accounts with beneficiaries are now called payable on death or transfer on death accounts.
You can open them at banks and brokerages. While you are living, the beneficiary would not have access to the resources in the trust. After your death, they would obtain the death certificate and present it to the institution. If everything is in order, they would become the owner of the payable on death account.
Probate Avoidance
Probate is the legal process of estate administration. When a will is used to facilitate asset transfers, the executor admits the document to probate. A court provides supervision while the estate is being administered.
No inheritances are distributed while the estate is being probated. Depending on the nature of the estate, it will take anywhere from eight or nine months to multiple years. Another drawback is the loss of privacy, because interested parties can access the records.
Probate expenses are another factor. The executor is entitled to payment, and there is a filing fee. There can also be attorney and accountant fees, appraisal charges, and liquidation expenses. These costs reduce the value of the estate before it is distributed to the beneficiaries.
Assets in a payable on death account will be transferred to the beneficiary directly. The probate court will not be involved, and this is the major benefit that the account provides.
Limitations and Drawbacks
There are some reasons why you should take pause before you decide that a payable on death account is a substitute for a proper estate plan. First, you can add multiple beneficiaries, but they typically get equal percentages. This may not be consistent with your wishes.
Some people decide to leave everything to one beneficiary. They also provide verbal instructions about the way they want the beneficiary to distribute the assets. This may work out, but from a legal perspective, the beneficiary would not be required to follow the instructions.
Dishonesty is obviously one reason why someone may take the matter into their own hands. In other cases, the individual feels as though the original account holder did not make the “right” decisions.
There is no asset protection going forward when you leave someone a lump sum inheritance via a payable on death account. Plus, there are no spending safeguards if the individual is not very good with money.
Better Alternative
If you want the same benefit without any of the limitations or drawbacks, you can use a living trust instead. You would be the trustee while you are living, so you would maintain control of the assets. After your death, a successor trustee that you name would assume the role.
The trust will become irrevocable at that time, and the assets would be protected from the beneficiaries’ creditors. When you are drawing up the trust, you can instruct the trustee about the way you want the assets to be distributed. A living trust can remain active for 21 years, so you can dictate limited, long-term distributions if you choose to do so.
Probate is not a factor when a living trust is being administered. As a result, the pitfalls that we looked at are avoided.
Attend a Complimentary Seminar!
We conduct seminars on a consistent basis to inform our neighbors. There are a number of them on the schedule right now, and you can click the following link to learn more: Connecticut Complimentary Estate Planning Seminars.
- Can You Give Inheritances in Advance to Limit Estate Taxes? - August 11, 2026
- Do Trusts Pay Taxes on Capital Gains? - July 9, 2026
- How Does a Trust Differ From a Will? - July 7, 2026
What Can Good Estate Planning Do for You? (Part 2)
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