Bankruptcy Questions Answered

Totten Trust Or Gift-To-Minors Account: Which Is Exempt In Bankruptcy?

A client established several years ago a bank account to save for his children’s education. The bank opened the account as a Totten Trust. The client said he knew his kids’ account was protected from judgment creditors because I had stated, somewhere on my website, that bank accounts established for children is exempt from creditors and not part of a Chapter 7 bankruptcy estate. I responded that regardless of what he read the proper way to protect children’s money from your creditors is by setting up a bank account under the Uniform Gift to Minors Act (UTMA) rather than a Totten Trust.

A "Totten Trust" is a common law concept that refers to a financial account with money held in trust for another person. Some banks will open accounts for the benefit of other persons as Totten Trust. Florida law considers Totten Trusts to be revocable at will during the grantor’s lifetime. Because the grantor may rescind the trust and receive Totten Trust money, so can the grantor’s creditors capture same funds. Florida bankruptcy attorney Jordan Bublick posted a good explanation of Totten Trusts in his blog.

Uniform Gifts to Minors Act is explained in Florida Statute 710.11. A transfer of money to a UTMA account is irrevocable and is permanently vested in the minor children until the child has reached the age of 21 years. Because the grantor cannot reverse a transfer of money to a UTMA account and cannot access money in the account, neither can the grantor’s creditors or a bankruptcy trustee. How do you set up a UTMA account at your bank? You ask for it !

Totten Trust accounts and UTMA accounts both involve money intended for minor children. The two types of accounts have different bankruptcy consequences. Don’t confuse them.