Should I do a POD or TOD on my accounts?

Many people hold financial accounts that have payable on death (POD) or transfer on death (TOD) designations where you can select who gets the account upon your passing.  The question that arises is should you use them?  The answer is maybe or maybe not.

A POD and TOD can be a great tool to distribute financial assets upon your death.  Accounts such as life insurance policies, bank accounts, brokerage accounts, and retirement accounts have such options. If you use the POD or TOD option, that asset will be distributed outside of your will, trust, and probate process.  This means that your beneficiary can quickly get this asset by providing your death certificate and completing a form provided by the financial company.  If your plan is to avoid probate and the rest of your assets are owned by a trust, this could be a great option.  This is also a good option to provide assets to someone outside of probate.  Some people will choose to provide for one child through a POD or TOD and specifically not provide for that child in his or her will. This can be helpful if that child would need quick funds upon your passing and it would be unfair to also provide for him or her in the will based upon an equal distribution.

While this sounds like a great option, using PODs and TODs for all of your financial assets posses a problem if your estate is submitted for probate.  Recently, my family ran into this issue with my grandfather’s estate in Iowa.  All of his financial assets had PODs, which was great for my mom and her two sisters, but it left the estate cash poor.  There was no liquidity in the other assets and my aunt, the personal representative of the estate, was required to loan the estate money in order to pay for my grandfather’s estate’s expense such as preparing the house for sale, the bond premium, and utilities.  Fortunately, my aunt had the funds to do this, but some families do not have this option.  It is better to leave at least one account without a POD or TOD designation.  This means that the asset will be included in your probate estate, but it also provides the necessary liquidity for the estate to pay for the expenses that arise through out the probate process.

It is very important that when you are preparing a POD and TOD designation, you use an experienced estate attorney to coordinate your estate plan so that every thing runs smoothly for your family upon your death.

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