Jonathan Alper’s Asset Protection Blog had an interesting post entitled Bank Accounts to Avoid Probate: POD vs. ITF accounts. In estate administrations you come across pay-on-death “POD” bank accounts and in-trust-for or “ITF” bank accounts (also known as Totten trusts) all the time. Jonathan makes some interesting points regarding the differences between these two non-probate accounts on asset-protection grounds. Although I’m not sure I agree with his conclusions, here’s an excerpt:
Here’s my understanding, although I know of no cases comparing the two types of accounts. . ITF , “in trust for” implies the existence of a trust relationship so that the beneficiary of the trust (Mary) would have equitable ownership in the account funds from the day John funds the account. . Of John opened a POD account, Mary would have no rights or interest in the account during John’s life, and Mary would first acquire an interest upon John’s death. From an asset protection standpoint, John is a trustee over Mary’s money during his life in the case of an ITF account, and John has no equitable ownership in the money which would be vulnerable to his creditors. Creation of the ITF account is an immediate gift in trust to Mary. If John’s POD account John has a life estate in the account and the beneficiary has a remainder interest. During his lifetime John has full access to money in his POD account; Mary’s interest is limited to what is left in the POD account upon John’s death.. Because John can access for his own use money in a POD account during his lifetime I expect that John’s creditors could attack money his POD account as they can get whatever rights John has in the POD account. For that reason, I believe an ITF account provides better asset protection as well as probate avoidance.