When is a trust not a trust? When it is a Totten Trust.
A Totten trust is actually a trust in name only. It does not not involve a trust document or trust instrument as in the usual case of a proper trust. It is an informal trust arrangement that is accomplished simply by titling an asset or more often, a bank account.
It could also be called a tentative trust due to the fact that it is conditional upon the death of the account owner. For example “John Doe” trust for Jane Doe
To set up a Totten trust is simple. Many banks, credit unions, and savings institution offers this type of account. In many cases, it incurs no additional cost.
Advantages of a Totten Trust:
- simple and cheap to set up
- no need to pass through probate
- beneficiary can be easily changed
The disadvantages:-
- not recognize in all states
- funds may be subject to estate taxes for some state in the US
