Written by: Attorney Raymond Chandler
A Totten trust is an older form of bank-account arrangement in which a person deposits his or her own funds into an account in his or her own name as trustee for another person. Missouri courts recognize this type of arrangement as a “tentative” or Totten trust. During the depositor’s lifetime, the arrangement generally remains revocable and the depositor retains control over the funds. If the depositor dies without revoking the arrangement, the remaining account balance may pass to the beneficiary.
A Totten trust is similar in practical effect to the payable-on-death, or POD, accounts that banks commonly offer today, but the two are not technically the same legal arrangement under Missouri law. Missouri separately authorizes POD accounts by statute.
Because more modern estate-planning tools generally allow clearer and more coordinated planning, Polaris Estate Planning & Elder Law does not create Totten trusts as part of our estate-planning services. We generally prefer alternatives that can be coordinated with the client’s complete estate plan. This article is intended to explain the term for people who encounter or search for “Totten trust” and to explain why we ordinarily use other planning strategies.
Key takeaways
- A traditional Totten trust is an informal, revocable bank-account trust in which the depositor holds his or her own funds as trustee for a named beneficiary.
- Missouri recognizes Totten trusts, but Missouri also separately recognizes statutory payable-on-death accounts. The two can have similar results but are not technically identical.
- The depositor generally retains control of a Totten trust during life and may withdraw the funds or otherwise revoke the arrangement.
- A Totten trust applies only to the particular account involved and does not provide the broader administration, incapacity planning, or beneficiary protections available through a comprehensive estate plan.
- Polaris Estate Planning & Elder Law does not create Totten trusts. We generally prefer other estate-planning methods that can be more intentionally coordinated with a client’s assets, beneficiaries, incapacity plan, and overall estate-planning objectives.
How it actually works
Setting one up is straightforward: Traditionally, a Totten trust is established by placing a bank account in the depositor’s name as trustee for a named beneficiary. During the depositor’s lifetime, the arrangement is tentative and revocable. The depositor continues to control the funds and may withdraw them or otherwise revoke the arrangement. If the depositor dies before the beneficiary without revoking the arrangement, the beneficiary may become entitled to the remaining balance.
Modern Missouri POD accounts operate similarly in several respects, but they arise under separate statutory authority. Missouri law expressly permits a bank account to be titled in POD form, with the owner retaining sole control during life and the surviving POD beneficiary receiving the account at death.
Why the name causes confusion
Calling it a “trust” makes it sound like the formal, comprehensive planning tool most people mean when they use that word, the kind that can hold real estate, manage assets for a beneficiary who isn’t ready to receive a lump sum, and provide instructions for incapacity. A Totten trust does none of that. There’s no trust document, no trustee managing assets for someone else’s benefit in the way a revocable living trust works, and no ability to hold anything beyond the specific account it’s attached to.
It’s similar to a POD designation with an old-fashioned name attached, and understanding that distinction matters, because families sometimes assume a Totten trust is doing more work in their estate plan than it actually is.
Where it falls short
It only covers one account. If you have multiple bank accounts, retirement accounts, real estate, and investments, a Totten trust on one savings account does nothing for anything else you own.
It doesn’t coordinate with the rest of your plan. Just like other beneficiary designations, a Totten trust overrides what your will says, regardless of how the rest of your estate is divided. An outdated beneficiary on an old account can create the exact same inconsistency problem as an outdated retirement account beneficiary.
It does not protect the funds from the depositor’s creditors during life. After death, avoiding probate also does not necessarily mean that the account is insulated from estate obligations. Missouri law permits recovery from recipients of certain nonprobate transfers when the probate estate is insufficient to satisfy applicable statutory allowances, administration expenses, and unpaid claims.
It doesn’t address incapacity. If you become unable to manage your finances while alive, a Totten trust does nothing. That’s what a durable power of attorney is for.
It isn’t a substitute for a living trust. A revocable living trust can hold nearly any type of asset, manage distributions over time, and provide real continuity if you become incapacitated. A Totten trust does none of that. It’s a single-purpose tool, not a comprehensive plan.
Why Polaris generally uses alternatives to Totten trusts
Although Missouri recognizes Totten trusts, Polaris Estate Planning & Elder Law does not create them as part of our estate-planning services.
A Totten trust is limited to the particular deposit account involved and provides little ability to coordinate that asset with incapacity planning, trusts for beneficiaries, real estate, other financial accounts, or the client’s overall distribution plan. Modern estate planning generally provides other ways to accomplish the same probate-avoidance objective while coordinating the asset more deliberately with the rest of the plan.
Depending on the client’s circumstances and objectives, those alternatives may include properly coordinated beneficiary designations, ownership through a revocable living trust, or other trust-based and nonprobate planning strategies.
The appropriate approach depends on the client’s entire estate rather than one account in isolation. That is why our planning focuses on coordinating the client’s assets and documents as a whole instead of establishing Totten trusts account by account.
Frequently asked questions
Is a Totten trust the same as a payable-on-death account? No. While in certain states the terms are used interchangeably, in Missouri, a Totten trust and a POD are legally distinct..
Does a Totten trust avoid probate? A properly established Totten trust generally allows the remaining account balance to pass to the beneficiary outside ordinary probate administration if the arrangement remains effective at the depositor’s death. It has no effect on other property the depositor owns.
Can I have more than one Totten trust? It is possible for a person to establish more than one qualifying account arrangement, but Polaris does not create Totten trusts. We generally use other estate-planning tools to coordinate nonprobate transfers with the client’s overall plan.
Is a Totten trust enough for a full estate plan? Generally not on its own. It’s a useful tool for a specific account, but it doesn’t hold real estate, manage assets over time, or address incapacity the way a full plan does.
If you encountered the term “Totten trust” while researching ways to avoid probate, Polaris Estate Planning & Elder Law can help you evaluate the alternatives. We do not create Totten trusts; instead, we generally use planning strategies designed to coordinate the client’s accounts, property, incapacity planning, and beneficiaries as part of the overall estate plan.
