Setting up the easiest pathway for your assets to pass on your death seems like a great idea. Or is it? One way that people often pass their assets to heirs is using transfer-on-death (TOD) and payable-on-death (POD) designations. As with anything, there are pros and cons to using TODs and PODs.
Transfer-on-Death or Payable-on-Death?
First, let’s establish what these two terms mean. A TOD or POD account allows the owner to name beneficiaries and, in some cases, successor beneficiaries to receive the account holder’s interests after his or her death. Though the terms are obviously similar, there are distinctions between the two.
Transfer-on-death can be used on stocks, bonds, and brokerage accounts. Bank accounts, on the other hand, typically use POD instead of TOD. In some states, property owners may pass property using a transfer-on-death deed. Unfortunately, Alabama does not allow transfer on death deeds but does allow life estate deeds. For purposes of this blog, we’ll just look at how TOD and POD is used with financial accounts.
The act of making your accounts TOD or POD is pretty simple. It just may require you to fill out a few forms. The effect, however, can affect your heirs in positive or negative ways.
Pros of Using TOD or POD
Making the TOD or POD designations can give you some or all of the following benefits:
- It’s fairly easy to change the beneficiaries.
- The assets in your TOD/POD accounts pass easily to your beneficiaries.
- The TOD/POD accounts don’t go through probate.
Cons of Using TOD or POD
However, in some cases using TOD or POD may not be the right move:
- If all named beneficiaries predecease the owner of the property, the estate becomes part of the deceased owner’s probate estate.
- Minors or special needs beneficiaries may become ineligible for benefits if they receive an inheritance through a TOD or POD account. In these cases, a special needs trust might be a good idea.
- Without carefully synchronizing estate plans and TOD/POD accounts, there may be unintended consequences. For instance, you may want your heirs to receive equal shares of your estate, but the amount your heirs receive become unequal due to TOD/POD accounts that do not become part of your probate estate.
Know How to Use the Right Tools.
While they are popular, TOD and POD designations are not for everyone. For a simple estate, using transfer-on-death and payable-on-death may be the best solution. More complicated estates may require more advanced estate planning. Learn more by consulting with an experience estate planning attorney.
The attorneys at Adams & Miller, P.C. can help you develop estate planning strategies that are right for you. For a free consultation, contact us at 256-251-2137 or use our convenient Contact Form. Although we’re located in Anniston and Birmingham, we assist clients in Gadsden, Hoover, Talladega, Vestavia Hills, and surrounding areas.