Lynn Brenner Lynn Brenner

Brenner answers questions about all aspects of family finance.

What is a Totten trust? What are the advantages or disadvantages of having a Totten trust at a bank with an adult child named as beneficiary? Is a POD account a better option?

A Totten trust and a POD (Payable on Death) account are the same thing. The account goes directly to the named beneficiary when you die, but he or she has no access to it as long as you're alive. (By contrast, a jointly owned account can be emptied by either owner.)

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A POD account is a simple, cost-free way to leave an inheritance that doesn't go through probate, the legal process in which a court validates your will. (Assets that have named beneficiaries or are jointly owned with right of survivorship aren't subject to probate because they're not governed by your will.) But contrary to popular belief, there's no tax advantage to avoiding probate. Moreover, in New York it's a quick, inexpensive process

As for potential drawbacks, consider your family situation. If you have several children, for example, those you don't name on the POD account won't get a share of it. Be aware, too, that if you jointly own a POD account, the joint owner inherits it when you die -- not the beneficiaries. The surviving owner can revoke or change the beneficiary designations. Remember, too, that a POD account or Totten trust doesn't shield your money from taxes or from your creditors, during your lifetime or after your death. For example, New York law entitles your surviving spouse to inherit one-third of your estate. If your other assets are insufficient to meet that obligation, your widow or widower can claim that one-third entitlement from the Totten trust even if you named another beneficiary.

The bottom line A POD account is a simple alternative to a will.

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