TOD and POD Accounts: What's the Difference?
A TOD (Transfer On Death) account allows account holders to designate a beneficiary on non-retirement financial accounts to receive assets upon the account owner’s death, typically avoiding probate. A POD (Payable On Death) account functions similarly but handles bank assets like cash rather than securities such as stocks or bonds.
Key Differences
Account Types: TOD accounts generally deal with brokerage accounts, stocks, and bonds, while POD accounts manage bank deposits and cash holdings. Both types allow direct asset transfer to named beneficiaries without probate proceedings.
Availability: Most major brokerage houses, investment firms, and banks now offer these account types, with many allowing online setup.
Primary Advantages
The main benefit is probate avoidance. These accounts bypass the probate process, which can be slow, expensive, public and at times messy. Assets transfer directly and quickly to intended beneficiaries upon the account owner’s death.
Important Limitations
However, several complications can arise. When someone passes away, estate creditors, administrative expenses, and taxes may create liability. Estate administrators can seek contributions from POD and TOD beneficiaries to cover these obligations, potentially resulting in litigation if beneficiaries refuse.
Additionally, if beneficiaries face lawsuits, divorce proceedings, or have already spent inherited funds, asset distribution becomes complicated.
Planning Considerations
Trusts offer additional benefits that POD and TOD accounts cannot provide:
- Planning for incapacity through successor trustees
- Managing assets for minor beneficiaries or those with special needs
- Long-term asset management for beneficiaries with creditor issues or substance abuse concerns
- Greater flexibility in protecting beneficiaries’ interests
Consulting an experienced estate planning attorney can help determine which strategy, whether POD/TOD accounts or revocable trusts, best suits your individual circumstances.
If you have questions about structuring your accounts as part of your estate plan, do not hesitate to contact The Stegall Law Firm for a consultation.
