What Is a TOD or POD Account?
There are numerous different ways that you can arrange for assets to be transferred to your loved ones after you pass away. In truth, the best way to decide would be to discuss everything with an estate planning attorney.
There is no reason to expect a layperson to understand all the options that are out there, and why you would use one and not another.
The above being stated, in this post we will look at a so-called “simple solution” that is less effective than some people may believe.
Payable on Death
When you open an account at a brokerage or a bank, you will probably be given the opportunity to add a beneficiary. This is called a TOD or POD account. TOD stands for transfer on death, and POD stands for payable on death.
With this type of account you maintain sole control while you are living. The beneficiary that you name cannot make any decisions or handle the account in any way.
After you pass away, the beneficiary would assume ownership of anything that is left in the account.
One benefit that you would gain through the creation of a POD account would be the avoidance of probate. If you had assets in a bank or brokerage account, and you left these resources to an heir in your last will, the transfer would not take place immediately after you die.
The executor that you name in the will would be required to admit the will to probate. This is a legal process, and it takes place under the supervision of the probate court.
Technically, it is in place to provide oversight and certain protections, but it comes with some drawbacks. This process can be expensive, and money that is spent during probate would have otherwise gone to the heirs.
It is also time-consuming, and the transfer would not take place until after the estate was probated.
When you have a POD account, the beneficiary would assume ownership of the remainder in the account after your passing outside of the probate process.
POD Account Drawbacks
All of the above can sound great, but there are potential drawbacks. For one, to keep things simple, you may name a single beneficiary. You tell that beneficiary to distribute the assets to multiple different people after you die.
There is nothing compelling the beneficiary to follow these instructions.
In addition, there is no way to account for incapacity, and these accounts do nothing to provide tax efficiency or asset protection.
In the final analysis, there are much more comprehensive estate planning solutions that can accomplish multiple goals simultaneously.
If you would like to put a well constructed, solid estate plan in place, send us a message through this page to schedule a free consultation: Dallas TX Estate Planning Lawyers.