Many people have questions about POD and TOD accounts and wonder if they are a wise estate planning tool to avoid probate. While POD and TOD accounts may avoid probate for a specific asset, there are several risks and disadvantages of setting up all of your accounts as POD and TOD accounts.
What are POD and TOD Accounts?
POD stands for “payable on death,” and is a designation that you can add to a financial account instructing the financial institution to pay the funds in the account to an individual at the time of your death. If the individual is an adult who is still living and who is not incapacitated at the time of your death, the funds in the account will be paid to him or her without the necessity of probate.
TOD stands for “transfer on death,” and is another designation that you can add to a financial account. Like a POD, upon your death, the ownership of the account will be transferred to the designated individual if the individual is an adult who is still living and who is not incapacitated at the time of your death. The account will transfer to the individual named as the TOD without the necessity of probate.
The Disadvantages of POD and TOD Accounts
POD and TOD accounts sound like an amazing estate planning tool because you can avoid probate by placing these designations on each of your financial accounts. However, there are several disadvantage of using POD and TOD accounts in your estate planning strategy.
- The POD or TOD predeceases you – If you name someone as a POD or TOD but that person dies before you and you fail to update the designation, the account must be probated.
- You become incapacitated – POD and TOD accounts only transfer upon your death. If you become incapacitated and do not have a power of attorney to manage your finances, the account may fall into a conservatorship. In some cases, the financial institution will not accept the power of attorney and your agent will be forced to litigate the matter in court. Because POD and TOD accounts only transfer upon your death, if you are incapacitated you have no say in how those accounts are managed if the POD or TOD designation is modified or removed.
- POD and TOD accounts for minors – If you designate a minor as the POD or TOD and you die before the minor is 18 years old, the legal guardians of the child must petition the court for conservatorship over the account. This can be a costly and time-consuming endeavor that will continue until the child reaches 18, when the account can be transferred to him or her.
- The POD or TOD becomes disabled – If your POD or TOD is disabled when you die, receiving this account may interfere with the person receiving disability benefits.
Alternative Estate Planning Tools
Because there are so many issues that can arise when using POD and TOD accounts to avoid, delay or decrease the cost of probate, they are not the best estate planning tools you can use to accomplish your goals. Your probate and trust attorney can discuss legal options regarding a trust. A trust will accomplish your estate planning goals without the risks associated with POD and TOD accounts.
Contact an Experienced Estate Planning Attorney in Tulsa
When you need the services of an experienced estate planning attorney, call Oklahoma Will & Trust. Tulsa Estate Attorney Earl D. Lawson has the experience and knowledge to assist you with all of your estate planning and probate needs. As a skilled Tulsa estate planning attorney, Earl D. Lawson knows the advantages of protecting your estate and ensuring that your wishes are followed.
Contact an experienced Tulsa estate planning attorney today for a free consultation about the best approach to protecting your legacy. Call (918) 876-4500 to schedule your free consultation. We are conveniently located at 201 W. Fifth Street, Suite 404 in Tulsa, OK.