A TOD or POD account is a bank or brokerage account that includes the selection of a beneficiary. TOD stands for “transfer on death.” POD stands for “payable on death.” The two terms are interchangeable, but we will use the term POD account here.
A POD account can seem like a perfectly suitable estate planning solution on the surface. You open an account at a bank or brokerage, and you name a beneficiary.
While you are living, the beneficiary does not have access to the funds that have been placed into the account. You are the sole controller, and you can do whatever you want to do with the assets that have been conveyed into the account. If you want to, you can close the account.
After you pass away, the beneficiary would assume ownership of the assets that remain in the POD account. This transfer of assets would take place outside of probate. Probate is the legal process of estate administration. It can be time-consuming, and it can be costly.
You may want to take pause before you decide that a POD account is the right choice as an estate planning tool. There are certain limitations that you must accept if you want to use this type of account to transfer your assets.
If you name one person as the beneficiary of the account, what about the rest of the people on your inheritance list?
You could instruct the beneficiary to distribute the assets in a certain way after you die. However, the inheritor could ultimately choose to disregard your instructions. There would be nothing legally compelling the beneficiary to do any particular thing with his or her inheritance.
Depending on the financial institution, you may be able to name multiple beneficiaries, but this can also present problems.
Some financial institutions require you to allow for equal distributions among the beneficiaries. This may not be consistent with your wishes.
If one of the beneficiaries passes away, there can be confusion with regard to the appropriate distribution of the funds in the account after your passing. The surviving beneficiaries may feel as though they should divide the funds in the account, but the heirs of the deceased beneficiary may think otherwise.
There is also the matter of incapacity. With a POD account the beneficiaries would not have access to the funds in the event of your incapacitation. The court could be petitioned to appoint a guardian or conservator to handle the account in the event of your incapacitation.
There is no reason to be bound by these limitations. You can create a custom crafted estate plan that ideally satisfies your wishes. If you would like to discuss things with an attorney, contact us to request a free consultation.