Totten Trusts

A very simple form of a revocable grantor trust used to avoid probate court is called a Totten trust. Most banks have a simple form that a depositor can use to create this trust form for a bank account. In a Totten trust, the depositor is the trustor, the trustee and the only beneficiary during his or her life. A contingent beneficiary is named in the trust instrument who takes over ownership of the account upon the death of the trustor.

The Totten trust is revocable. Thus, the trustor 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 trustor's life, the Totten trust is much safer than, for example, a common alternative way of avoiding probate court with a bank account: namely, opening or converting the account to joint tenancy. When the joint tenancy alternative is used, the joint owner takes an immediate interest in the account, including the right to withdraw some or all of the funds.

In the Totten trust, the beneficiary has no immediate rights in the account, so the creditors of the beneficiary 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 just one example of the unique nature of trusts, where, in this case, one person may assume multiple roles in the trust.