In the article titled “Tips to Avoid Probate,” I introduced the Payable-on-Death and Transfer-on-Death designation as an option for passing some non-sheltered assets to a designated beneficiary (or beneficiaries) and avoiding the probate process. Probate can be a long and complicated process, but avoiding it doesn’t have to be. Designating beneficiaries for retirement and non-retirement accounts, as well as other allowable assets can ensure a streamlined transfer of the asset(s) to your beneficiary without giving up any control during your living years.

A Payable-on-Death, or POD, designation is commonly associated with a bank account, such as a checking or savings account. Creating a POD account is as simple as filling out a short form at the bank to designate the beneficiary. Once it is setup, it only becomes effective at the death of the individual account owner, or surviving joint owner if the account is a joint account. During the living years the POD beneficiary has no control over the account, or access to the funds. You can spend the money as you desire, change the POD beneficiary, or close the account at any time.

Similar to the POD, the TOD (Transfer-on-Death) is a registration that is commonly associated with the transfer of investment securities and other assets. Setting up a TOD allows the owner to pass stocks, bonds, even brokerage accounts, to a beneficiary without having to go through the probate process. Once again, the beneficiaries will not have any ownership rights to the assets during your living years and you retain full control of the account and the ability to easily change the beneficiaries at any time. Some states even allow a TOD designation for automobiles and real estate deeds. For a list of states that have adopted the Uniform Transfer on Death Securities Registration Act you can go to http://uniformlaws.org/Act.aspx?title=TOD%20Security%20Registration%20Act

Transfer on death accounts and registrations may be a good fit for those who have a single beneficiary (or if multiple beneficiaries, they get along well) that they would like to distribute the asset(s) to. A TOD designation might also be ideal for those who would like to easily change their beneficiary designations or prefer that a particular account be distributed differently than the rest of the estate.

As a final note, a beneficiary designation will take precedence over anything stated in a Will. If your TOD or POD designation is different than what you have stated in your Will, the assets will be distributed to the named beneficiaries. Fortunately though, once a beneficiary designation has been set, it is quite simple to change or remove it.

Kevin Warman, CIMA®, RMA®

Last Updated 7/12/2017