Using a payable-on-death or transfer-on-death account is the simplest way to keep assets out of probate.
With either a transfer-on-death or a payable-on-death account, you are in control. The assets in the account pass directly to your named beneficiary and bypass probate, the court proceedings that validate your will after your death and transfers property to your heirs after debts and taxes are paid.
Your will doesn’t control who inherits a POD or TOD account, sometimes called a “Totten trust”. So when you set one up, make sure its provisions reflect your intentions.
With a POD/TOD account you can name a new beneficiary at any time, you don’t have to leave anything in it, and your beneficiary’s creditors cannot grab the assets in your account while you are alive.
For the beneficiary, the appeal is its simplicity: After your death he or she can claim the assets with proof of identity and a death certificate.
Joint versus POD/TOD?
Joint-ownership accounts are traditionally used by husbands and wives. In most cases, they are important financial tools and work as intended. But for some married couples and single people, joint accounts may not be appropriate.
Because joint bank accounts are generally set up so that the surviving owner receives the entire balance upon the death of the co-owner, some assume that there’s little difference between joint and POD/TOD accounts. Not so.
In both types of accounts, the assets bypass probate when the first joint owner or POD/TOD owner dies, but beyond that there are important distinctions. The legal requirements of joint ownership with the right of survivorship can have unanticipated consequences, including:
Points to ponder
POD/TOD accounts obviously have advantages, but before you set up multiple accounts, consider these points:
While every individual’s circumstances are different, utilizing provisions in the law that control cost of estate settlement & planning while maintaining control during one’s lifetime is a critical part of your financial planing process.
The information herein contained does not constitute legal advice. Any decisions or actions should not be made without first consulting an attorney.
For more information contact us at 845.563.0537 or Contact@CompassAMG.com
The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.