Posted On March 14, 2017

It’s crucial to designate what happens to your financial accounts

When it comes to finances and estate planning in Oregon, many Oregonians hold financial accounts that have payable on death (POD) or transfer on death (TOD) designations. With POD/TOD designations, you select who gets the account upon your passing. But should you use POD or TOD? Sometimes yes, sometimes no, so let’s take a look at some of the nuances.

How POD and TOD can be useful

POD and TOD designations can be useful tools to distribute financial assets upon your death. You can set up these designations outside of your will, trust, or other estate planning instruments.

Assets distributed via POD and TOD also typically do not have to go through probate. However, setting POD or TOD designations is usually an account option, not a requirement, and there are cases where you may not want to use these designations.

Accounts such as the following usually have POD or TOD options:

  • Life insurance policies
  • Bank accounts
  • Brokerage/investment accounts
  • Retirement accounts

Finances and estate planning in Oregon: Distribution of POD/TOD assets after death

If you use the POD or TOD option, the rules of that asset govern distribution 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 company that holds the account.

Upsides of using POD/TOD designations

If your plan is to avoid probate and a trust owns the rest of your assets, using POD and TOD designations can 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.

Downsides of using POD/TOD designations

While this sounds like a great option, using PODs and TODs for all of your financial assets poses a problem if your estate goes to probate. Recently, my family ran into this issue with my grandfather’s estate in Iowa.

All of my grandfather’s financial assets had PODs. This was great for my mom and her two sisters. However, it left the estate cash-poor.

There was no liquidity in the other assets. My aunt, the personal representative of the estate, had to loan the estate money in order to pay for my grandfather’s estate expenses, 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.

Finances and estate planning in Oregon: Use POD and TOD strategically with your broader estate plan in mind

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. It also provides the necessary liquidity for the estate to pay for the expenses that arise throughout the probate process.

When you are preparing a POD and TOD designation, it is very important that you use an experienced estate attorney. That way everything runs smoothly for your family, whether through POD/TOD, or as part of your Oregon estate plan.