Why A “Poor Man’s Trust” Might Be Right for You

I have a “poor man’s trust” on all of my bank accounts.  Not many banks promote this feature because it means processing an extra piece or two of paperwork, but every financial institution I’ve ever worked for (and I’ve worked for two large national financial institutions and two small community banks) have this option available.   

POD is the bank acronym for Payable on Death - the common name for the Totten Trust.  I feel strongly that everyone with a net worth under $1 million should add a POD beneficiary to any account or stock on which they are the sole account holder.  I typically recommend the POD option to clients that fit the following demographics:

  • Anyone with a negative net worth (like me)
  • Young people with high student loan balances but significant savings or income
  • Retirees with no real assets outside of their bank accounts

By adding a POD beneficiary to your bank account, the account proceeds circumvent probate. The only things the beneficiary (payee) has to do to access their benefit is provide a current photo ID and supply a certified copy of the account holders death certificate to the bank where the account is housed.  This feature is why a Totten Trust also referred to as a “poor man’s will.”  

There are other benefits of POD accounts:

  • It is a revocable trust and the account holder can change beneficiaries at any time so long as they can prove mental competence
  • The beneficiary or his/her creditors have no claim on the account until the primary account holder dies
  • A certified copy of a death certificate typically costs $15 - $50 depending on the county and can usually be procured within 24-72 hours of a death. The probate process is expensive and time consuming, and life insurance proceeds can take weeks after the benefit event (death) to materialize. Without POD, it could take a loved one months or even years to gain access to account balances, which could put undue financial hardship on those who have to make final arrangements (funeral, burial, cremation, etc.) on your behalf.

There are a few caveats to invoking POD - it can only be used on bank accounts, IRAs, savings bonds, and stocks.  It is not applicable to real property or livestock (apologies to all of the ranchers and farmers out there).   Laws regarding POD and estates vary (not every state recognizes the Totten Trust), so check to see what’s applicable where you live before adding a POD payee to your bank accounts.

For more information about POD/Totten Trusts, contact your local bank or visit with your attorney.

Stumble it!

11 Responses to “Why A “Poor Man’s Trust” Might Be Right for You”

  1. The Poor Man's Will... Says:

    […] Even for those that don’t make a ton of money, there are still some things you can do to make the best use of your dollar and plan for the future; early planning always makes financial sense!

    Please join Banker Girl as she talks about The Poor Man’s Will […]

  2. The Poor Man's Will... Says:

    […] Even for those that don’t make a ton of money, there are still some things you can do to make the best use of your dollar and plan for the future; early planning always makes financial sense!

    Please join Banker Girl as she talks about The Poor Man’s Will… […]

  3. Becky Says:

    Why should anyone with a negative net worth have this? I don’t, but I’m just curious. Let’s say you have $10,000 in savings and $10,000 in debt. If you put a POD on the savings account, what happens to the debt?
    Thanks for the neat article. My employer, a financial services company, offers a TOD. It sounds like these are the same.

  4. Heidi Says:

    @Becky - you should do this to circumvent probate and guaranty that $10,000 cash goes directly to a named beneficiary. The debt will just have to be written off by the bank (unless the bank where the savings account resides is the same one the loan is at - in that case, the bank will likely have the right to offset, meaning they would get your $10,000 in cash to pay off the debt). That’s a good case for not having all of your bank accounts at a single bank.

    The great thing about being dead is you no longer have to worry about your credit rating!

    In my case, the reason my net worth is negative is due to student loan debt. Student loan debt is automatically forgiven at death.

  5. Colleen in MA Says:

    Thanks for this information - I hadn’t heard about this before. I know about the hassle my mom had to go thru when her mother in law died with a ton of debt and it fell upon my mom to settle her estate. God forbid something should happen to me, I don’t want her to go thru that again.

  6. Smart Spending Says:

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  7. Becky Says:

    That’s very good to know!

  8. Lynnae @ beingfrugal.net Says:

    Thank you for this information. This would have come in handy when my FIL died last year. He didn’t even have a negative net worth, but the hoops we had to jump through to get access to the bank account were insane.

  9. hank Says:

    I actually was looking to set this up with my Edward Jones ROTH IRA before I decided to get rid of them - It really is a beneficial piece also if you don’t want to dump a bunch of $ on a will and testament at a young age…

  10. b dear Says:

    Thanks for posting this. I had no idea such a thing existed and will definitely be checking into it further.

  11. squawkfox Says:

    Do you know if this is available in Canada?

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