The name is derived from Matter of Totten, 179 N.Y. 112 (1904), the case decided by the New York Court of Appeals which established the legality of this practice.
Although this method of creating a trust did not meet the formal requirements of trust creation, or the testamentary formalities required to make a valid will, the Court noted that such an arrangement typically involved a small amount of money left by a person of modest means, who could not otherwise afford to establish a legal mechanism for passing the specified property.
The funds in question are not subject to probate and, if held in a bank account, are insured in the same manner as any deposit.
A Totten Trust is classified as a "testamentary substitute" because it avoids the need for the assets held in the account to go through probate.
Totten trusts can be created only with certain types of depository accounts or securities; in particular they can not be used to convey real property.