A "Totten trust" is really just a payable-on-death (POD) bank account—an account for which the owner names a beneficiary, who inherits the funds in the account when the account owner dies.
These accounts are widely used, because they provide an easy way to transfer money at death without probate court proceedings. To set up a POD account or to turn an existing savings or checking account into a POD account, all the account owner has to do is fill out some paperwork provided by the bank, naming the POD beneficiary. The documents must be turned into the bank, so it has a record of who the beneficiary is.
Naming a POD beneficiary doesn’t have any consequences until the account holder dies. The beneficiary doesn’t have any rights to the money as long as the account owner is alive. And the account owner is free to close the account, withdraw some or all of the funds, or name a different beneficiary. The money in the account isn’t protected from the account owner’s creditors.
That’s it. When the account owner dies, the beneficiary simply goes to the bank and collects the funds in the POD account.
There are some considerations to make before setting up a POD account, and it may be better to create a living trust instead. To learn more, see Pros and Cons of P.O.D. Designations to Avoid Probate.
If you’re the executor of an estate, and the deceased person left behind Totten trust or POD bank accounts, the beneficiary may be able to claim the funds without your help. Usually, all that’s required is evidence of the death (a certified copy of the death certificate) and of the beneficiary’s identity. Banks have been doing this for years, and they’re very familiar with the process—they’re the ones who provide the forms on which account owners designate their POD beneficiaries, after all.