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Trusts & Estates — Totten Trust – Banks & Banking – Payable on Death Account

Nelson v. State Employees’ Credit Union (Lawyers Weekly No. 15-07-0768, 13 pp.) (Richard Dietz, J.) Appealed from Orange County Superior Court (Allen Baddour & Marvin Blound III, JJ.) N.C. App.

Holding: Even though plaintiffs’ late father failed to comply with the statutory requirements to create a payable on death account in favor of plaintiffs’ sister, the father’s efforts were successful in creating a common law tentative or “Totten” trust.

We affirm summary judgment for the defendant-credit union.

Judge Blount ruled early on that the credit union had violated G.S. § 54-109.57 and thus failed to create a statutory payable on death account. Judge Baddour did not subsequently overrule Judge Blount when he determined that the credit union could still prevail on a common law theory.

The payable on death statute did not supplant the common law of tentative or Totten trusts. G.S. § 54-109.57(a1) says, “This section shall not be deemed exclusive. Deposit accounts not conforming to this section shall be governed by other applicable provisions of the General Statutes or the common law, as appropriate.” Furthermore, in an analogous context, we have held that the payable on death statute exists as an alternative to the common law. Bland v. Branch Banking & Trust Co., 143 N.C. App. 282, 547 S.E.2d 62 (2001).

To create a tentative trust, the grantor must satisfy the same criteria necessary to establish any other valid trust: (1) sufficient words to show intention to create the trust, (2) a definite subject, and (3) an ascertained object. The distinguishing feature of a tentative trust is that the depositor retains complete control over the funds until his death, the trust is fully revocable, and is revoked in part each time the settlor withdraws funds from the account.

Here, James Nelson signed a bank form indicating that he was creating a payable on death account in which his daughter, Martha Brown, was the beneficiary. Nelson told credit union employee Ellen Shook that he wanted to create a new account with Brown as beneficiary.

Nelson’s assets with the credit union were all within a revocable living trust, and he explained to Shook that he wanted to move $85,000 from that trust into a separate one with Brown as the beneficiary. Thus, Nelson expressed his intent to create a trust, identified the specific sum of money to be placed into the trust account, and identified the beneficiary of the trust.

Although Nelson did not use the word “trust,” use of the word “trust” is not necessary in order to satisfy the three elements of a valid trust.

It is true that Nelson retained complete control over the funds until his death, but that is the nature of a tentative trust, and it does not change the fact that the grantor of such a trust transfers a non-possessory beneficial interest upon creation of the trust.


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