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What is a Totten Trust?

One of the options my bank offers is a Totten Trust, but I don't understand what that is. Could you explain?


The term Totten Trust is used to describe a type of informal trust. It exists where there is no formal written trust agreement and a person simply sets up a deposit account in his own name, followed by the words "in trust for." The person who sets up the account is deemed to be the owner of the funds, and the person that it says the account is "in trust for" will be entitled to the funds after the owner's death.

Here's an example: Haskell set up an account as follows: Haskell Baker in trust for Jody Baker. Jody is his daughter (but the law doesn't limit these accounts to family relationships. She could just as easily be his friend, or a co-worker, or whoever he wants to be generous to). Haskell is considered the sole owner of the funds during his life. He can write checks, make withdrawals, even close the account, if he so desires. Jody doesn't have any right to the money while Haskell is alive. In fact, Haskell may choose to not even tell her she is named on the account as a Totten trust beneficiary. Jody also doesn't have a right to get any information about the account from the bank while Haskell is still alive. When Haskell dies, if he hasn't closed the account, spent all the money, or revoked the part where she's named Totten trust beneficiary, the money will pass to Jody without the need for probate or any other type of legal proceeding.

Published on BankingQuestions.com 7/28/06