Does a Totten trust have to go through probate?

There are many types of trusts that can be used in an estate plan. Examples include special needs trusts, spendthrift trusts and discretionary trusts. Often, funds will be set aside for a specific beneficiary, but a trustee will be assigned to authorize distributions from that account, in accordance with the instructions left to them by the grantor.

A Totten trust, also called a POD account, is a bit different. It essentially means assigning a beneficiary to a bank account at a financial institution. The beneficiary is not a co-owner, so they have no rights to authorize that fund while the original owner is still alive. However, when that owner passes away, the account quickly passes into the name of the beneficiary, who then owns the funds.

This arrangement avoids probate

Because this transfer happens quickly, a payable-on-death (POD) account will avoid the probate process. It does not have to be counted among the deceased’s financial assets because it has already been transferred into the name of the selected beneficiary.

This can be relevant in many scenarios. For one thing, it can give people quicker access to the funds. For another, a Totten trust is insulated from estate disputes or will contests. Furthermore, if the deceased person also named that account in their estate plan and selected a different beneficiary, the beneficiary named in the Totten trust will take precedence over the estate plan.

This helps to illustrate some of the benefits of using a POD account, and it is important to understand exactly what legal steps to take and what ramifications there can be when doing so.