You sometimes receive advice from people that have good intentions, but they have an incomplete understanding of the subject at hand. When you blindly believe what they say, you can make mistakes that yield negative consequences. This is quite common in the estate planning realm.
There are those that suggest simple solutions that may not be so simple after all in the big picture. With this in mind, we will look at the Totten trust in this post.
Payable on Death
Banks and brokerages will allow you to open up a special type of account called a payable on death or transfer on death account. Another name for these accounts is the Totten trust.
When you establish and fund the account, you name a beneficiary, and you can potentially name multiple beneficiaries. They would not have access to the funds while you are living.
After your passing, the beneficiary would obtain a copy of the death certificate. It would be presented to the institution, and the resources would be released to the beneficiary.
The transfer of the assets to the beneficiary would not be subject to probate. This is a legal process that takes place under the supervision of the Surrogate’s Court here in New York.
When a will is used as an asset transfer vehicle, it is admitted to probate. The process will take about nine months at minimum, and the people that are named in the will receive nothing while the estate is being probated.
Time consumption is one negative, and the expenses that accumulate during probate consume a portion of the estate. These would include court costs, legal and accounting fees in some instances, liquidation and appraisal charges, and the executor’s payment.
Disgruntled parties can challenge an estate during probate, and this open window of opportunity is another factor that is less than ideal for the rightful inheritors.
A Better Option
A Totten trust will facilitate probate avoidance, but there is a much better option in the form of a revocable living trust. You have more freedom and flexibility when you have a living trust, and you can include important protections.
When you create a living trust, you are the trustee while you are living, so you have total control of the assets. You name a successor to step into the role of the trustee after you are gone when you draw up the trust declaration.
Any mentally competent adult that is willing to take on the assignment can technically act as the trustee. However, if you do not know anyone that is a suitable candidate, you have another option available to you.
Trust companies and the trust departments of banks provide trustee services. While there is a fee involved, it can be the right choice if the trust is well-funded, and it is going to remain active for an extended period of time
The extended period of time factor is key, because you can add a spendthrift provision, and the trust would become irrevocable after your death. If you have concerns about the money manager capabilities of the beneficiary, you can provide limited incremental distributions.
For example, you can instruct the trustee to distribute the trust’s earnings on a monthly basis with portion of the principal added to reach a dollar amount. A living trust can remain active for as long as 21 years.
Take Action to Put a Plan in Place!
There are different possibilities when you are planning your estate, and the ideal course of action will depend on the circumstances. For this reason, legal counsel is invaluable, and we would be more than glad to work with you to develop a tailor-made plan that suits your needs.
If you are ready to get started, you can schedule a consultation at our Manhattan, NY estate planning office if you call us at 212-973-0100. There is also a contact form on this site you can fill out if you would like to send us a message.