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What is a Totten trust and how does it work?

If you're doing your estate planning and looking for some unusual options, you may want to consider a Totten trust. It's not common, but it can be a very successful way to move assets, especially if you want to keep the move a secret.

Essentially, a Totten trust is just a bank account. While you're alive, the account is yours. You can add to it, take from it, spend it down to nothing, or use it in any way that you'd like. It's your account and your money.

However, when you set it up, you can pick a beneficiary. When you pass away, the bank account then belongs to this beneficiary. He or she can't use it at all while you're alive, but no one else can touch it after you pass away.

The beneficiary doesn't have to stay firm, either. If you decide to change it, you can do so at any time during your life. Whoever is listed when you die, though, gets the account.

Doing this means that the money in the account doesn't have to be distributed publicly. If no one else even knows the account exists, it just silently changes hands upon your death.

One reason people use Totten trusts, then, is to transfer money if they have a secret romantic interest. Even if your spouse passed away years ago, for example, maybe you kept a new relationship secret from your kids to avoid drama. The Totten trust allows you to give this person some of your assets without telling the kids.

As you can see, there are many different options when it comes to trusts and estate planning. Be sure you carefully consider them all.

Source: Forbes, "Six Trusts For The Person Who Has Everything Else," Deborah L. Jacobs, accessed June 16, 2017

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