Totten Trusts

A very simple form of a revocable grantor trust used to avoid probate court is called a Totten trust. Actually, you are much more likely to know of this trust by it's more commonly used name: payable on order of death (POD) accounts. Most banks have a simple form that a depositor can use to create this trust with a bank account. With a POD account, the depositor is the grantor, the trustee and the only beneficiary during his or her life. A contingent beneficiary is named in the trust instrument, which is usually simply a card filled out when you open the bank account, who takes over ownership of the account upon the death of the grantor.

The Totten trust is revocable. Thus, the grantor can amend or revoke the trust during his or her lifetime. The easiest way to do this is simply to spend the money in the account.

Because the contingent beneficiary has no rights in the account during the grantor's life, the Totten trust is much safer than the common alternative way to avoiding probate: namely, having the bank account in joint tenancy. In joint tenancy, the joint owner has an immediate interest in the full amount of the account, including the right to withdraw some or all of the funds.

With a POD account, the beneficiary has no immediate rights in the account, so the beneficiary can't deplete the account and his (or her) creditors cannot reach the account. On the other hand, the creditors of a co-owner of an account held in joint tenancy can attach the co-owner's interest in the account.

The Totten trust is an example of the unique nature of trusts, where, in this case, one person may assume multiple roles in the trust.