Totten trust
Encyclopedia
A Totten trust is a form of trust
in the United States in which one party (the settlor
of the trust) places money in a bank account
or security with instructions that upon the settlor's death, whatever is in that account will pass to a named beneficiary. For example, a Totten trust arises when a bank account is titled in the form "[depositor], in trust for [beneficiary]".
(1904), the case decided by the Court of Appeals of New York which established the legality of this practice. Although this method of creating a trust did not meet the formal requirements of trust creation, or the testamentary formalities required to make a valid will
, the Court
noted that such an arrangement typically involved a small amount of money left by a person of modest means, who could not otherwise afford to establish a legal mechanism for passing the specified property. For this reason, the device is sometimes called a "poor man's will". The funds in question are not subject to probate
and, if held in a bank account, are insured
in the same manner as any deposit. The beneficiary has no access to the account until the depositor's death and need not be notified that the account exists. This is also called a tentative trust because it is contingent upon the death of the settlor
or creator of the trust account.
s now recognize the validity of Totten trusts. The Restatement 3d of Trusts (Section 26) and the Restatement 3d of Property (Section 7.1 comment i) also recognize its validity. Such a device can be revoked at any time by the settlor, either by closing the account or by executing a will which disposes of the property in the account. The funds in the account can be reached by the creditors of the settlor during the settlor's life. If the intended beneficiary predeceases the settlor, then the gift will lapse
, and will generally not be saved by an anti-lapse statute.
Totten trusts can be created only with certain types of depository accounts or securities; in particular they can not be used to convey real property
.
More generally, Totten trusts are sometimes described as "Arrangements for deposit accounts."
Income trust
An income trust is an investment that may hold equities, debt instruments, royalty interests or real properties. The trust can receive interest, royalty or lease payments from an operating entity carrying on a business, as well as dividends and a return of capital.The main attraction of income...
in the United States in which one party (the settlor
Settlor
In law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator...
of the trust) places money in a bank account
Bank account
A Bank account is a financial account recording the financial transactions between the customer and the bank and the resulting financial position of the customer with the bank .-Account types:...
or security with instructions that upon the settlor's death, whatever is in that account will pass to a named beneficiary. For example, a Totten trust arises when a bank account is titled in the form "[depositor], in trust for [beneficiary]".
Origin
The name is derived from Matter of Totten, 179 N.Y. 112Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(1904), the case decided by the Court of Appeals of New York which established the legality of this practice. Although this method of creating a trust did not meet the formal requirements of trust creation, or the testamentary formalities required to make a valid will
Will (law)
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...
, the Court
Court
A court is a form of tribunal, often a governmental institution, with the authority to adjudicate legal disputes between parties and carry out the administration of justice in civil, criminal, and administrative matters in accordance with the rule of law...
noted that such an arrangement typically involved a small amount of money left by a person of modest means, who could not otherwise afford to establish a legal mechanism for passing the specified property. For this reason, the device is sometimes called a "poor man's will". The funds in question are not subject to probate
Probate
Probate is the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person's property under the valid will. A probate court decides the validity of a testator's will...
and, if held in a bank account, are insured
Deposit insurance
Explicit deposit insurance is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due...
in the same manner as any deposit. The beneficiary has no access to the account until the depositor's death and need not be notified that the account exists. This is also called a tentative trust because it is contingent upon the death of the settlor
Settlor
In law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator...
or creator of the trust account.
Totten trusts today
Most U.S. stateU.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
s now recognize the validity of Totten trusts. The Restatement 3d of Trusts (Section 26) and the Restatement 3d of Property (Section 7.1 comment i) also recognize its validity. Such a device can be revoked at any time by the settlor, either by closing the account or by executing a will which disposes of the property in the account. The funds in the account can be reached by the creditors of the settlor during the settlor's life. If the intended beneficiary predeceases the settlor, then the gift will lapse
Lapse and anti-lapse
Lapse and anti-lapse are complementary concepts under the law of wills, which address the disposition of property that is willed to someone who dies before the testator .-Lapse:...
, and will generally not be saved by an anti-lapse statute.
Totten trusts can be created only with certain types of depository accounts or securities; in particular they can not be used to convey real property
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
.
More generally, Totten trusts are sometimes described as "Arrangements for deposit accounts."