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Understanding the Contrast Between Transfer on Death and Payable on Death Designations

Incorporating payable-on-death (POD) or transfer-on-death (TOD) designations into your financial accounts can offer a convenient way to pass on your assets to chosen beneficiaries after your passing. Much like trusts, POD and TOD accounts bypass probate, offering a swift and cost-effective transfer process. However, these designations come with certain limitations when compared to traditional trusts. Delving into the differences between these options, their advantages and drawbacks, and seeking guidance from an estate planning attorney is essential for aligning them with your estate planning goals.


Differentiating POD and TOD (vs. Trusts)

The concepts of payable on death and transfer on death might evoke thoughts of somber subjects, but in estate planning, they are crucial terms to comprehend. When aiming to avoid probate—a time-consuming and expensive legal process for settling an estate—assets can be placed in trusts, which facilitate seamless transfers outside of probate. POD and TOD accounts offer an alternative means of evading probate:

  • Payable on Death (POD): A POD designation is linked to bank accounts like checking, savings, certificates of deposit (CDs), and money market accounts.
  • Transfer on Death (TOD): TOD pertains to investment accounts such as individual retirement accounts (IRAs), 401(k)s, brokerage accounts, and securities holdings.

Furthermore, while both POD and TOD designations transfer assets to beneficiaries, POD designations transfer assets to beneficiaries, while TOD designations transfer ownership of the account to beneficiaries.

While financial institutions may refer to POD accounts as Totten trusts, it’s vital to distinguish that unlike a trust, POD and TOD accounts lack a trustee managing the assets. Instead, the assets directly transfer to beneficiaries. This means the transferred assets aren’t shielded from beneficiary creditors or their financial choices.


POD and TOD: Benefits and Considerations

In jointly held accounts, POD or TOD designations activate only after both account holders pass away. For instance, in the case of spouses jointly owning a POD account, the surviving spouse assumes sole ownership upon the first spouse’s death, with assets passing to named beneficiaries after the surviving spouse’s passing.


The merits of POD and TOD accounts encompass:

  • Simplified Setup: Establishing these designations is straightforward and often free.
  • Expedited Transfers: Beneficiaries receive assets without waiting for probate, avoiding delays.
  • Immediate Access: Beneficiaries can access funds quickly with a death certificate and identification.
  • FDIC Insurance: Bank accounts enjoy FDIC insurance up to $250,000; multiple beneficiaries can provide additional coverage.
  • Flexibility: Designations can be altered or revoked, offering adaptability.
  • Power of Attorney: Durable power of attorney can be added, enabling a third party to manage the account.
  • Trust Compatibility: Trusts can also be designated as beneficiaries.


However, consider potential downsides:

  • Incapacity: POD or TOD designations don’t cover incapacity situations.
  • Lack of Backup Beneficiaries: In case of predeceased beneficiaries, assets may be subject to probate.
  • Separate from Estate Plan: POD and TOD accounts exist outside your overall estate plan.
  • Limited Settlement Options: POD accounts can hinder estate settlement and payment of debts.


Selecting the Right Path for Your Estate Plan Crafting an estate plan is a personalized endeavor influenced by your values and family dynamics. When weighing options like POD, TOD, trusts, wills, or powers of attorney, it’s imperative to consider each one’s pros and cons. While converting accounts to POD or TOD may seem straightforward, additional factors like taxes and the best interests of heirs should guide your decision. Collaborating with an estate planning attorney offers valuable insights into integrating POD and TOD accounts within your overarching estate plan. Reach out to us today to commence your planning journey.

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