Totten Trusts and POD Designations

A Totten Trust is a type of informal trust created by depositing money into a bank account with the intention that the funds will go to a named beneficiary upon the depositor's death. These accounts are revocable while the depositor is alive, meaning they can change the beneficiary or withdraw funds, and they bypass probate when the depositor dies.

Jane opens a bank account and names her daughter, Sarah, as the beneficiary, creating a Totten Trust. During her life, Jane decides to withdraw some money from the account and later updates her will to exclude Sarah. Upon Jane's death, the remaining funds in the account go to Sarah, as the trust was not revoked by the withdrawal.

Totten Trusts: Revocable while alive, automatic transfer at death!

Exams may confuse students by presenting scenarios where a withdrawal or a will change affects the trust, leading candidates to misinterpret the revocation rules. Students might also overlook that creditors can reach these accounts during the depositor's lifetime.

Questions often present fact patterns involving changes to beneficiary designations or withdrawals, testing the candidate's understanding of how these actions affect the Totten Trust's validity and the transfer of assets.