TODs and PODs: Advantages and Disadvantages
It seems like a great idea. Finding an easy way for your assets to be handed down to your beneficiaries is appealing. Transfer-on-death (TOD) and payable-on-death (POD) designations can do just that. However, you’ll need to know the advantages and disadvantages of using TODs and PODs before using them.
Which One Do I Need – TOD or POD?
Let’s look at what those two terms mean. Both TOD or POD accounts allow the account holder to name who will receive the account balance or payout after death. Many financial institutions and insurers offer an option to choose TOD or POD. The terms are obviously similar, but there are some differences.
The transfer-on-death option is often used for bonds, stocks, and brokerage accounts. However, bank accounts generally use a POD designation instead of TOD. In addition, some states, including Arizona, allow people to pass their real property using a transfer-on-death deed.
It’s not difficult to make your accounts TOD or POD. You’ll just need to fill out a few forms, and they can usually be done online. Just a little effort will help your beneficiaries in big ways.
Why Use TOD or POD Designations?
You and your beneficiaries will enjoy some or all of the following benefits:
- Changing the beneficiaries is easy for you to do. Just following the instructions from the financial institution or insurance company.
- Assets in your TOD/POD accounts pass easily to your beneficiaries.
- TOD/POD account assets typically don’t become probate assets.
Why You May Hesitate to Use TOD or POD Designations.
Sometimes, transfer-on-death or payable-on-death may not be the best choice:
- If the beneficiaries die before the property owner, the assets become part of the deceased owner’s probate estate. Account owners need to update their designations when a named beneficiary passes away.
- Setting up a trust may be best option for minors or heirs with special needs. The money received from a TOD or POD account may hurt their eligibility for public benefits.
- It’s important to carefully synchronize estate plans and TOD/POD accounts. For example, you may want your heirs to receive equal shares of your estate. If some receive TOD/POD payouts, or if the value of the accounts changes, your heirs may receive unequal shares.
Learn More About the Best Ways to Transfer Your Estate.
Although popular, TOD and POD designations are not the right solution for everyone. Learn more by consulting with an experience estate planning attorney.
At Keystone Law, Francisco Sirvent assists people with their legal questions every day. Check out our videos at keystonelawfirm.com. To schedule an appointment, call us at (480) 418-8448. Serving Arizona communities like Ahwatukee, Sun Lakes, Tempe and more.
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