By: Zachary Brody, CFP®, Matthew T. Stillman, JD, LLM
Probate, the legal process of distributing a deceased individual’s assets, can be cumbersome, expensive, and public. However, a Totten Trust, also known as a “tentative trust” or a “deposit-in-trust” account, offers a simple and often free solution. With a Totten Trust, a bank account is set up with two names: the depositor’s and beneficiary’s names. Upon the depositor’s passing, the beneficiary automatically inherits the funds without going through probate, ensuring a private and streamlined transfer of assets.
The benefits of a Totten Trust can be significant. Firstly, it provides a cost-effective alternative to probate, saving both time and money for your heirs. Secondly, by keeping assets outside of probate, your estate planning remains private and confidential. Thirdly, it reduces the likelihood of contested claims and potential disputes over asset distribution. Lastly, it preserves privacy, a Totten Trust shields sensitive estate planning details from public dissemination.
While a Totten Trust simplifies the probate process and avoids the need for administration, it’s essential to consider some drawbacks. Depending on the jurisdiction, the asset’s value may still be subject to Probate Fees generated by the Court if modified by the depositor until their death. Another concern is access to the funds in the account in the event of the depositor’s incapacitation, as the named beneficiary has no control of the funds until the demise of the account owner.
Setting up a Totten Trust is straightforward. Open a bank account with both your and the beneficiary’s names, informing the bank of your intention to establish a Totten Trust. While no specific forms are required, retaining a copy of the account application can serve as evidence of the trust’s creation. The depositor retains full authority and access to the funds until their passing, ensuring continued financial management during their lifetime.
For those considering a Totten Trust or seeking a comprehensive estate plan, consulting a Financial Advisor is wise. A qualified Financial Advisor can assess your unique circumstances, educate you on various options, and help tailor a plan to your needs.
According to Caring.com1, only 1 in 3 adults have an estate plan, highlighting the importance of estate planning to avoid complications for your loved ones. Without a will, your assets will be distributed based on state laws, potentially leading to a probate process your heirs would have to navigate.
In conclusion, the Totten Trust offers a straightforward means to bypass probate and maintain privacy in estate planning. Nevertheless, exploring all options with the assistance of a financial advisor is crucial for the best course of action for your specific circumstances. Estate planning is a vital aspect of financial management, and seeking professional advice empowers you to make well-informed decisions.
Disclaimer: This article is for informational purposes only and should not be construed as legal advice. It is essential to consult an attorney to address your unique situation and tailor an appropriate estate plan accordingly.