Estate Assets that transfer upon death

Customers of banks and other financial institutions can opt to have their accounts include “pay on death” (POD) or “transfer on death” (TOD) provisions, which direct that money or securities held in the account will automatically be given to a designated beneficiary upon the account owner’s death. The effect of a POD/TOD designation is that the proceeds of the account do not become part of the owner’s estate and so are exempt from the probate process. Some people utilize POD/TOD designations in lieu of creating a will or trust. However, there are significant risks in taking that approach to estate planning.

There are certainly advantages to POD/TOD accounts. Banks and other financial institutions most often accept these beneficiary designations at no charge. Also, the account holder can change beneficiaries, withdraw funds or simply close the account at any time for any reason. The paperwork and other administrative requirements are minimal. Further, the payment or transfer process is simple. The institution gives the account proceeds to the named beneficiary upon presentation of identification and a certified copy of the account holder’s death certificate.

However, POD/TOD accounts have limitations. Many types of assets are not subject to POD/TOD provisions — for example, real property, vehicles, jewelry, heirlooms, artwork and other valuables. If the owner has no will or trust, the other assets will be distributed in accordance with state law rather than the owner’s wishes. If a POD/TOD account does not specify an alternate beneficiary and the named beneficiary dies before the account holder, the intended gift fails. The gift also fails or is diminished if the owner withdraws funds or closes the account. Conversely, if the account value has increased beyond expectations, the beneficiary may get more than the owner wanted to give. Finally, the POD/TOD is problematic if the intended beneficiary is a minor or otherwise not competent to own property.

A comprehensive estate plan can ensure that the owner’s property is distributed in accordance with his or her wishes. At a minimum, every adult should have a last will and testament. Depending upon the individual’s circumstances, creating one or more trusts may be advisable. People can still utilize POD/TOD accounts to distribute assets. However, this is best done in conjunction with appropriate estate planning documents. A comprehensive estate plan ensures that the intended beneficiaries receive the owner’s property as intended, with less chance of an inheritance dispute.

Favaro, Lavezzo, Gill, Caretti & Heppell, PC provides estate planning services throughout the greater North Bay region of California, with offices in in Fairfield and Vallejo. Feel free to contact us online or call 707-674-6057 for a free initial consultation.