Sometimes legal documents are referred to by multiple different names. This can be confusing, and we try to clear things up on this blog. With this in mind, we will look at the Totten trust in this post.
When you hear about a trust in an estate planning context, you may assume that the device is going to be very complicated. This is why many people who are not fully informed turn away from viable solutions.
There is a type of trust called a Totten trust that is actually quite simple to understand. These trusts are alternately called payable on death or transfer on death accounts. You can open up one of these accounts at a bank or brokerage.
When you open the account, you name a beneficiary. The beneficiary cannot access the resources that you conveyed into the account while you are alive, so you are not surrendering control to anyone else right away.
After you pass away, the beneficiary would assume ownership of assets that remain in the payable on death account or Totten trust.
There are drawbacks with these accounts, but there is a major positive that you would gain if you had a Totten trust. The transfer to the beneficiary would take place outside of the process of probate.
Probate is a time-consuming and expensive legal process. If you use a will to leave the money in a personal account to an inheritor, the heir would not receive his or her inheritance until the estate was probated and closed by the court.
A payable on death account can sound like a great solution on the surface, but there are significant limitations. You cannot account for incapacity when you create this type of account, and incapacity is common among elders.
Totten trusts do not provide asset protection, and they do nothing to facilitate tax efficiency.
There is also the matter of balancing inheritances. You may be able to add multiple beneficiaries, but institutions will often require equal distributions. This may not be the way that you want to spread around the money in the account.
If you were to tell a single beneficiary to distribute the assets in a certain way after you die, the beneficiary would not be legally required to follow these verbal instructions, and this is another negative.
Freedom of Choice
When you plan your estate, you have freedom of choice. There is no particular reason why you should settle for limited solutions.
We offer free consultations, and we would be glad to explain all of your options to you. You can send us a message through this page to set up an appointment: San Jose CA Estate Planning Attorney.
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