Probate Alternatives: Totten Trusts and Pay on Death Accounts

One issue which comes up often is whether certain accounts must go through probate – or not. Stripping away everything else, a probate is a lawsuit which resolves the ownership of property. If you do not appoint an owner of your property when you pass away, a judge will do it. Probate has some benefits, but it is also a costly and time-consuming process. Sometimes it is simply unavoidable.

Many misunderstand pay-on-death accounts and so-called Totten Trusts. Both are similar: Both allow the owner to designate a beneficiary, upon death. The beneficiary (such as, a child) does not have a present right to withdraw money from the account. However, upon the account owner’s death, the beneficiary can go to the bank, or institution, and claim the account by presenting a death certificate.

This type of account avoids probate because ownership immediately vests upon the original account-owner’s death. There is no need for court intervention unless the beneficiary dies first (which of course can happen).

So, this is one way to avoid a probate proceeding.  But there is a BIG difference between a pay-on-death account and joint tenancy account, when you place your intended beneficiary on the account as a co-owner. It might seem the same, but the legal effect of a joint tenancy account is very different.  I will deal with that issue in a later post.

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