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totten Trusts or payable on death trusts

March 24, 2022

John Brennan, Senior Vice President of Trust and Financial services at Cape Ann Savings Bank in Gloucester, Massachusetts, explains Totten trusts to John Maher. He talks about how to set them up and how they can allow you to easily pass money to a beneficiary after your death.

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Podcast Transcription:

Transcription Disclosure: Below is a transcript of the conversation between John Maher and John T. Brennan. Please note, this is an unedited "word for word" rendition of the actual conversation and is not intended to be grammatically correct.

John Maher: Hi, I'm John Maher. I'm here today with John Brennan, Senior Vice President of Trust and Financial services at Cape Ann Savings Bank in Gloucester, Massachusetts. Today, our topic is totten trusts or payable-on-death accounts counsel. Welcome, John.

John Brennan: Hi John.

What Is a Totten Trust?

John Maher: So John, what is a totten trust?

John Brennan: Well, I'll start out by saying this, John, a totten trust is actually not a trust, and I'll explain more, but it's not a true trust because it's really a bank account with two names on it. The name "totten trust" comes from a court case. A lot of things in the law, there's a court case, which is the genesis of it.

And there was the Totten case, that was a New York case, that essentially allowed that someone could open a bank account and then put somebody else's name on it, essentially, a transfer-on-death and payable-on-death and it was allowed. And so this type of "trust" was created but what it really means is it's a bank account with a TOD or a POD, transfer-on-death, payable-on-death language on it, which goes to the individual named once they pass.

How Do You Create a Payable-on-Death Account?

John Maher: Okay. So how do you go about creating this type of totten trust or payable-on-death account?

John Brennan: So, this is the easiest of probably all the trust we've talked about. Go to a bank and you sit down and say, "I'd like to open a checking account, savings account, certificate of deposit, money marketing account", you name it. Typical retail bank account. And then you would say, "John Brennan, POD. John Maher."

So that means that at death, what could happen if I were to pass away, you would walk in with a death certificate and some ID, and you could say, "John Brennan passed away. Here's his death certificate. I'm John Maher. Here's this. Here's the statement for the bank account. As you can see, I became the payee upon John's death and he's passed."

Pros and Cons of a Totten Trust

John Maher: Okay. So, what are some of the pros and cons of a totten trust or this type of bank account as compared to maybe setting up another type of revocable living trust or something like that.

John Brennan: So, we talked earlier today about generations-skipping trusts and grandkids in that context. The totten trust, I will think of as the grandma and grandpa trust. Okay. And the reason why is there's a lot of elders who might have five grandkids. They want the house, the major parts of their assets, they want to benefit their children, but their grandkids, they want to remember somehow. So what they might do is they might, if they have five grandkids, they might go into the bank, they might open five different $10,000 certificate of deposit accounts and make a POD for each grandchild. That way each child has their own separate assets. They can access it easily once the person has passed away.

They get the cash right away. There's no probate. It's really a simplified process. The con is that it's not a robust trust at all. The person just essentially gets the money when you die. So, it's not like you can say, "Well, if they graduate from college or this or that." Instead, they just get it outright. So, you don't really have any control. So, it usually makes sense for it to be not a huge amount of money, but a nice way to remember someone.

Risks to a Totten Trust

John Maher: Are there any risks to it at all? Say you do this for your grandchildren like you said, how do you make sure that they know about these accounts after you pass away? Is it just a matter of making sure that's specified in the will that, "Hey, by the way, I have this account at this bank and make sure you get your money from there."

John Brennan: Well, I think you're hitting on one of the cons right there because yes, if it's unknown, no one's going to know about it. And so it could be difficult to find. Chances are somebody would look at a bank statement, but if it goes overlooked, it’s the kind of thing that could go “asking”. The bank can't find the beneficiary, person's deceased, that's the thing that can create complexity and maybe lead to the totten trust or the bank account really... I know we don't use the term "dead letter", but we can't find a home for it.

And banks have rules about that and accounts go dormant for a certain amount of time. And once they've been dormant for a period of years, they pass over to the state. So for instance,, that's probably a spot where you might see a few totten trusts out there because they couldn't find the beneficiary. And it went “asking” when the person passed away.

Tax Implications of Totten Trusts

John Maher: Are there any particular tax implications for a totten trust?

John Brennan: No, because as long as if you're filing a state tax return, you just have to include it, but there's really no specific tax implications. It's an inheritance so the recipient gets its outright. And as long as the person, the decedent, paid their estate taxes, which most often times they did, if they have a complicated estate and an estate over a million bucks, they probably accounted for this. So no, I wouldn't. There's not a big tax piece to this.

Final Thoughts About Totten Trusts

John Maher: Okay. All right. So, could you just go ahead and summarize your thoughts on totten trusts or payable-on-death accounts?

John Brennan: Well, I think what's great about totten trusts is, a couple things, they should have the grandma and grandpa trust. So, they're great for grandparents. They make a lot of sense. The other thing too, with the POD, it might be the type of thing where you have an account that's joint.

An elderly mom might have her daughter on an account to pay bills or daughter, son, you name it, a child on an account, pay bills, handle the household. But then when they pass away, there might be a POD, which points the assets to their revocable trust. Okay. So that means, once the somebody's passed away, the POD would transfer the money and direct towards the larger vehicle. So very useful in terms of, if you want to just provide something outside of probate, outside the estate plan, to benefit somebody, who's been nice to, you helped you out, or somebody you've given a certain amount of financial responsibility to, but they don't have to know everything, but you want a nice way to remember them and look after.

The Gift Tax and Totten Trusts

John Maher: One final question. What is the gift tax? And does that have any implications for these types of totten trusts?

John Brennan: The gift tax is what it sounds like in that there are restrictions on the amount of money that you can give anyone. Okay. And the rule is essentially, you can't give a stranger more than $15,000 without filing a gift tax return, and that's while you're alive. But once at death, there's none of that. The decedent who has to pay any taxes. So, the gift tax, somebody who's a recipient, they don't have to worry about it. And it's often really pretty good news, because most people don't understand that once they receive it in inheritance, it's essentially income tax free.

John Maher: All right. Well, that's really great information, John. Thanks again for speaking with me today.

John Brennan: You got it, John.


Contact Cape Ann Savings Bank to Talk About Totten Trusts

John Maher: And for more information, contact Cape Ann Savings Trust and Financial Services at 978-283-7079 or visit the website at

Investments purchased through the Cape Ann Savings Trust and Financial Services department are not FDIC insured, not FDIC guaranteed, not bank guaranteed, and may lose principal value.

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