WHAT IS A TOTTEN TRUST? Payable on death account

While many of us have heard reference to this very official sounding term, most people have no idea what it actually is. It is simply a type of trust account also known as a “payable on death account” which anyone can set up at their local bank, here in New York. The term was derived from the (1904) Matter of Tottendecision, which brought these types of trusts into existence. As a New York estate lawyer I will usually keep these types of trusts in the back of my mind for clients whose estates are not large enough to generate New York State estate tax liability but are looking to leave money in trust for a beneficiary.

At the turn of the 20 th century these trusts were created for people who possessed no real property and could not afford to draft a will. For these people a Totten Trust was a cheap and easy way of leaving their inheritance to beneficiaries and was even coined “the poor man’s will”. Fortunately our current society is much more affluent than the previous one. Most people can now afford to have a New York estate lawyer draft a will preserving their estate assets for future generations. Despite recent fluctuations in the real estate market and economy, the vast majority of our contemporary society will eventually own at least one piece of real estate in their lifetimes, almost always requiring their estate to have a valid will drafted. However, The Totten Trust may still provide a useful function in today’s society.


The person setting up the trust is known as the “depositor” because they’re the individual who will be depositing the money into The Totten Trust account. The recipient of The Totten Trust account is called the “beneficiary”. The account is set up by simply going to your local bank and setting up an “in trust for” account, naming the beneficiary on the account. Some banks also call these accounts “payable on death” accounts and may require that wording accordingly. The depositor then deposits a sum of money into the account for the beneficiary and it is paid over to the beneficiary on the date of the depositor’s death. Prior to the depositors death the depositor may add to, withdraw from or terminate the entire account at any time. However, upon the depositor’s death, the beneficiary need only present an original death certificate to the bank, reclaiming the proceeds from the Totten Trust by operation of law (automatically).

Advantages of The Totten Trust:

Anonymity: A Totten Trust may be created in complete anonymity without even the beneficiary ever learning of its existence until the date of the depositor’s death. In fact, by 1966, the Totten Trust had become a clever tool for disinheriting spouses by leaving money to girlfriends outside of an estate. That is until the legislature stepped in making the proceeds of Totten Trusts “testamentary substitutes” thus attachable for disinherited spouses to recover. For example, prior to 1966, ifspouse A had $300,000.00 and disinherited spouse B by leaving girlfriend C $300,000.00 in a Totten Trust, spouse B would not be able to assert her 1/3 right of election. Since it is bad public policy to allow one spouse to disinherit the other, all spouses are entitled to their “right of election” no less than 1/3 of their husband or wife’s estate regardless of any will or trusts. The 1966 legislation extended this protection to assets left in Totten Trusts. After 1966, in the illustration above, spouse B would be entitled to $100,000.00 from her late husband’s estate regardless of the language of the trust.

Not estate assets: Although assets left in a Totten Trust will be used to calculate any estate tax liability, it is not deemed to be part of the decedent’s estate and will pass outside the realm of probatable estate assets. As such, if there is any dispute among beneficiaries of a will, the beneficiary will inherit the proceeds of the Totten Trust regardless. This is especially important when the decedent fails to leave behind a will.

Depositor maintains complete control: Another valuable attribute of the Totten Trust is the depositor maintains complete control over The Totten Trust account until the date of their death. This allows the depositor to use the money within the account to live, pay bills and can even change the beneficiary on the account at any time prior to their passing.

No tax disadvantage: As stated previously, while the contents of the Totten Trust will be used to calculate estate tax liability, there are no estate tax disadvantages to creating such a trust. Since the Totten Trust can be controlled right up until the testator’s death, it is treated as any other revocable trust and subject to any and all estate tax liability.

Beneficiary has no access to The Totten Trust: Unlike a joint bank account which grants both names on the account access to the funds immediately, a beneficiary of a Totten Trust will not even know of its existence until the date of the depositor’s death. Interestingly, the Totten Trust account is similar to a will in that it only grants the beneficiary an expectancy interest while the depositor is alive. Just like a will, the depositor is free to change their mind at any time prior to the date of their passing.

Disadvantages of The Totten Trust:

No real property: The Totten Trust was never meant to transfer real property to a beneficiary. Its sole purpose when originally devised was to provide lower income people with a practical means of leaving behind whatever money they had to the following generation. As such, it is always best to have a NY estate lawyer draft a will to distribute any and all real property through your estate.

No tax advantages: The Totten Trust grants no additional tax advantages over leaving inheritance through your estate. It is treated as a revocable trust and its contents will be used to calculate both Federal and New York State estate tax liability.

The beauty of The Totten Trust account is its simplicity. It requires very little paper work, no NY estate lawyer, and no fees for its creation. However, before running out and doing any estate planning it is always a good idea to sit down with an experienced NY estate lawyer. If you or a loved one are thinking about planning for the future, please feel free to contact one of our New York estate lawyers at the Law Offices of Jason W. Stern & Associates at (718) 261-2444. We would be happy to sit down with you to figure out the right estate strategy.

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