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Gregory S. DuPont Aug. 1, 2023

Many families choose to include a payable-on-death (POD) or transfer-on-death (TOD) designation in their estate plan. Both these designations allow the assets in the account to pass to a chosen beneficiary when the original owner dies. POD and TOD accounts have many benefits. Like trusts, they bypass probate (saving you time and money). They are also fast, easy, and cheap to set up. However, they don't provide the full range of benefits that a traditional trust does. Without a complete and sound estate plan, POD and TODs can have unintended consequences.

Before deciding whether to set up a POD or TOD account, it is important to:

  • Know the difference between them,

  • Understand their pros and cons, and

  • Talk to an experienced estate planning attorney about how they fit in with your goals

POD vs. TOD vs. Trust

While the topic of death is always somewhat gloomy, as an account holder you should be familiar with the terms Payable on Death and Transfer on Death.

As stated previously, POD and TODs are great ways to avoid probate—the legal process by which an estate is settled. Probate can be time-consuming and costly.

The major difference between POD and TOD accounts is the type of assets held in the account.

  • POD is a designation added to bank accounts (ex: a checking, savings, or money market account, or certificate of deposit)

  • TOD applies to investment accounts, such as an IRA, 401(k), or brokerage account, as well as real estate and car titles

Another difference between POD and TOD accounts is that, with a POD, the account assets are transferred to a beneficiary (or beneficiaries), but with a TOD, account ownership transfers to a beneficiary.

Financial institutions may refer to a POD account as a Totten trust, a type of revocable living trust. The POD designation may be revoked during the owner's lifetime, and the owner retains account ownership and rights to manage the account until they die. It is only when the owner dies that the beneficiaries have a claim to a TOD, POD, or revocable trust.

However, unlike a standard revocable trust, no trustee manages a POD or TOD. The POD or TOD account (or assets in it) transfer directly to the beneficiary at death. Keep in mind, assets transferred in this way have no protection from a beneficiary’s creditors or poor spending habits.

Pros and Cons of PODs and TODs

It is important to note that, in the case of jointly held accounts, a POD or TOD does not kick in until both account holders die. For example, if spouses jointly own a bank account and set it up as a POD, the surviving spouse becomes the sole owner of the account when the first spouse dies, and it only passes to named beneficiaries after the surviving spouse dies.

PODs and TODs can benefit families in many ways:

  • Setup is straightforward and there is little cost

  • Designated beneficiaries receive the funds without having to wait for probate to conclude, which can take months. Typically, all they need to provide to the account-holding institution is the death certificate and their ID.

  • Banks allow account owners to specify multiple beneficiaries for an informal revocable trust (i.e., a POD account), which provides additional FDIC coverage.

  • The account owner has the flexibility to change, add, or revoke a beneficiary designation.

  • For added flexibility, a durable power of attorney can be added to a POD or TOD account, allowing somebody other than the beneficiary to handle the account.

  • Trusts can also be named POD beneficiaries.

These benefits should be weighed against the following potential pitfalls:

  • A POD or TOD account is not effective if the owner becomes incapacitated and does not die

  • Backup beneficiaries cannot be named. So, if a beneficiary predeceases the account owner, their share of the account could be automatically reallocated to remaining beneficiaries or subject to probate. This is why it is important to consistently update your estate plan.

  • POD and TOD accounts are established through a financial institution and outside the rest of your estate plan. If a will is updated but POD or TOD beneficiaries are not, there could be inconsistencies in the overall plan.

  • Because POD bank accounts avoid probate, the funds in them are not available to settle claims or debts against the estate, such as estate taxes. This can make things harder on the executor, who may need to ask for contributions from a POD beneficiary.

  • If there are insufficient probate assets to pay the debts of the estate, creditors may be able to claim certain POD and TOD accounts.

Is a POD or TOD Account Right for My Estate Plan?

An estate plan is a highly individual matter unique to you. Your plan should reflect your wishes and family dynamics. As such, there is no “one size fits all” advice for an estate plan. The pros and cons of any estate planning vehicle—be it a POD, TOD, revocable trust, will, or power of attorney—must align with your values and goals.

Adding a POD to a bank account or a TOD deed to your home may be as easy as signing a document. But, the ease of this action must be considered alongside other considerations such as taxes and family dynamics.

Book a meeting with our experienced estate planning attorneys in Dublin, Ohio. We can discuss POD and TOD accounts, as well as other options that may serve your family better. Call 614-408-0529 to secure an appointment.

Want to learn more about Transfer-on-Death Deeds? Download our guide How to Keep Your Home in the Family: A Guide to Using Deeds and Trusts for Estate Planning Needs here.

Attorney Gregory S. DuPont PortraitAbout the Author - Gregory S. DuPont, JD, CFP

Greg has been serving clients as an estate and tax planning attorney in Ohio since graduating from Capital University Law School in 1992. He obtained an accounting and finance degree from The Ohio State University. As a Certified Financial Planner, a designation that requires advanced coursework in a complete range of financial subjects, he is a rare financial professional who can provide cross-disciplinary solutions from the legal, tax and investment perspectives.

Greg is the co-author of the book: Protecting Your Future with Tax-Free Long-Term Care, and is a contributing author in Jack Canfield's best selling book The Recipe for Success.

He has been named one of Ohio's Top 100 lawyers, an invitation-only designation given by The National Advocates.