The subtle difference between a Totten Trust and a Payable-on-Death (POD) account in California

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Summary: Totten Trusts and Payable-on-Death (POD) accounts are both financial tools that allow assets to bypass probate, ensuring that funds go directly to a designated person after the account holder’s death. The main difference lies in terminology and survivorship rules. In a Totten Trust, the account holder is a “trustee” and designates a “beneficiary” to receive the funds upon their death. In a POD account, the account holder is a “depositor,” and the designated receiver is a “payee.” Both accounts remain under the control of the account holder during their lifetime. However, California law outlines different rules for each upon the account holder’s death. While POD accounts provide an absolute right to the funds for the surviving payee, Totten Trusts allow more flexibility. The funds in a Totten Trust go to the beneficiary unless there’s strong evidence suggesting a different intent by the trustee. This distinction, rooted in the Uniform Probate Code, offers flexibility in situations where the beneficiary predeceases the trustee.

One often reads that a Totten Trust and a Payable-on-Death (POD) account are the same, have the same effect, or, if differences are acknowledged, that they are subtle. But what these differences are are is usually omitted. The most noticeable difference is the designation of the person who gets the money from the decedent. A Totten trust correctly calls this person a beneficiary, the POD account a payee, although sometimes these distinctions are not made.

Regardless, both are arrangements with a financial institution that specify account ownership during lifetime and survivorship rights. As such they bypass probate, in fact, the arrangements made with the financial institution cannot be changed by a will, only by directly changing beneficiary (Totten Trust) or payee (POD account) designation. Upon death of the person who established and funded the account the named beneficiary (Totten) or payee (POD) can demand payment by producing a death certificate of the person who established the account.

Despite the different terminology – the person who funds the account is a trustee in a Totten trust and a depositor in a POD account – both accounts belong to the depositor/trustee during her lifetime and not to the beneficiary.

It is in the case of death where the subtle differences arise. California Probate Code Sections 5301-5307 describes the survivorship rules under two different headings 5302(b) “If the account is a P.O.D. account” and (c) “If the account is a Totten trust account”. However, notwithstanding different terminology (see above) the code text is the same in (b) and (c) except that for Totten trusts instead of an absolute vesting in the surviving beneficiaries upon the death of the last surviving trustee (as is the case for POD accounts), the code provides that there will be such a vesting “unless there is clear and convincing evidence of a contrary intent.

POD account 5302(b)(2): “On death of the sole party or of the survivor of two or more parties, (A) any sums remaining on deposit belong to the P.O.D. payee or payees if surviving, or to the survivor of them if one or more die before the party …”

Totten trust account 5302(c)(2): “On death of the sole trustee or the survivor of two or more trustees, (A) any sums remaining on deposit belong to the person or persons named as beneficiaries, if surviving, or to the survivor of them if one or more die before the trustee, unless there is clear and convincing evidence of a different intent …”

In other words, in contrast to the POD account, a Totten trust can provide that if the beneficiary dies before the trustee, the successor of the beneficiary is not entitled to the proceeds.

California has adopted the Uniform Probate Code. This distinction between a Totten trust and a POD account was motivated by the belief of the UPC drafters that, while most persons would want the incident of survivorship to attach, this desire would not be universal (1). Thus, provision was made for the use of an account form (Totten trust) that allows this flexibility.

(1) J. Rodney Johnson, Joint, Totten Trust and P.O.D. Bank Accounts: Virginia Law Compared to the Uniform Probate Code, 8 U. Rich. L. Rev. 41 (1973).

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