Should you include Totten trusts in your California estate plan?

On Behalf of | Mar 8, 2023 | Estate Planning |

What is a Totten trust? It is a savings account created and funded by someone who makes themselves the trustee for a beneficiary. After the creator dies, whatever funds remain in the account pass to the preselected beneficiary. They are also called payable-on-death accounts.

More people are creating Totten trusts, often to leave something behind for those not mentioned in their will and other estate documents. As you may imagine, there are some advantages associated with these trusts and a few drawbacks.

What are the benefits?

Totten trusts are easy to create. Typically, you need only sign a few papers at the bank and deposit funds. Remember to give a copy of these documents to your estate planning representative.

Other advantages:

  • Until you die, you can use the account as you would any other (deposit, withdraw, etc.)
  • While alive, no one but you can access the account
  • Totten trusts bypass the probate process

Many use payable-on-death accounts to leave a little something to those who don’t belong in a family will, such as a close friend or distant relative.

What is the downside?

Totten trusts are not typically appropriate to serve as your sole means of distributing assets. For one, you may only use them to hold cash designations, not real estate or other complex assets. For another, the funds held in these trusts comprise part of your taxable estate. Large balances may be subject to heavy taxation.

While a Totten trust might be just what you need, consider exploring other options to distribute assets, minimize tax consequences and avoid probate. Someone with current knowledge of California estate planning laws can guide you toward a plan that meets all your needs.