You may have heard the term “Totten trust.” It’s referred to as a “tentative trust” under Pennsylvania law. It’s not a trust in the way most people think of them. It’s a payable-on-death (POD) account you can open at a financial institution.
A tentative trust can be an important part of estate planning – especially for those who don’t have joint accounts with a spouse or anyone else. That’s because it allows you to make money almost immediately available to a relative or other person upon your death. Often, people choose their estate executor as the beneficiary.
Why some funds should be available before your estate is settled
A tentative trust can be a great help in providing needed funds for your funeral and other expenses that your loved ones will likely face long before your estate is settled. You’ve probably noticed an increasing number of people setting up crowdfunding sites and otherwise seeking donations for a family member’s funeral – especially if they died suddenly.
If you don’t want your family asking for money for even a simple send-off and other expenses in the aftermath of your death, having a tentative trust with a responsible beneficiary is a simple way to avoid that.
Communication with your beneficiary is key
A tentative trust, as noted, isn’t a traditional trust. However, if you think of it in those terms, it’s a revocable trust. That means as the account owner, you have access to the funds while you’re alive. It’s generally best to add rather than withdraw funds over the years, but you can do either.
Before you name a beneficiary (as well as an alternate if you choose), make sure they’re agreeable to taking on the responsibility and they understand the money is for expenses – not their inheritance – as well as what to do with any remaining funds. Give them the bank and account information they need to access it when the time comes. They’ll likely just need their ID and a copy of your death certificate to withdraw funds.
You can change the beneficiary at any time. Of course, you should let the previous beneficiary know – unless it was their request to be removed – to help avoid confusion later.
Since setting up a tentative trust is part of the estate planning process, it’s wise to discuss it with your estate planning professional before you establish it so they can provide guidance or possibly make other recommendations that could better fulfill your goals.