Pay on Death (POD) and Transfer on Death (TOD): Pros and Cons
Jesica L. ThorsonJesica L. ThorsonThis is a question elder law attorneys often get because these terms are frequently used at financial institutions and sometimes used interchangeably.
A Payable-on-Death (POD) or Transfer-on-Death (TOD) designation to an account allows the funds in that account to be passed to the named beneficiary or beneficiaries when the account holder dies.
A POD designation is typically added to a bank account, such as a checking account, savings account, certificate of deposit (CD), and money market account.
A TOD applies to an investment account, such as an individual retirement account, 401(k), brokerage account, and other accounts holding securities.
POD and TOD accounts are outside your estate so if you update your Will or Trust, there could be inconsistencies in the overall estate plan. The funds in them are not available to pay for funeral arrangements, settle claims or debts of the estate, pay for ongoing expenses of estate assets such as a home or pay for taxes and attorney fees. Additionally, a POD or TOD account cannot provide the same protections for a minor or disabled child.
POD and TOD accounts are a way bypass probate. These designations are fast, easy, and do not involve an appointment with your attorney. However, they do not provide the full range of benefits that a traditional Last Will and Testament or Revocable Trust does and often has unintended consequences.
A POD or TOD account may be a great way to pass your property onto your family, but you should consider the pros and cons and talk to an elder law attorney on how these fit into your over estate planning goals.
