When it comes to estate planning, many of us think of wills and trusts as the primary tools for passing on assets to heirs. However, Transfer on Death (TOD) and Payable on Death (POD) designations may offer a simple, cost-effective way to ensure your loved ones receive your financial assets without the hassle of probate.

What Are TOD and POD Designations?

• Transfer on Death (TOD): This applies to non-retirement investment accounts, stocks, bonds, and other securities. By adding a TOD designation, ownership of these assets transfers directly to your named beneficiary upon your passing.
• Payable on Death (POD): This designation is commonly used for bank accounts, including checking, savings, and CDs. A POD allows the funds in these accounts to be immediately released to your named beneficiary upon your death.

What TOD and POD Designations are NOT

These types of designations are only like wills and trusts in that they help avoid probate. TOD and POD designations do not take the place of a will or a trust, as they do not allow for any control beyond the grave as to the timing of receipt of an inheritance, nor can you add a TOD or POD designation to a retirement account like an IRA or a 401(k).

Key Benefits of TOD and POD Designations

1. Avoid Probate

One of the biggest advantages of TOD and POD designations is that they bypass probate - the often lengthy and expensive legal process of distributing assets at death. Your beneficiaries receive the funds quickly, without court involvement.

2. Easy to Set Up

Unlike wills and trusts, adding a TOD or POD designation is simple and requires minimal paperwork. Most financial institutions (state-dependent) allow you to name beneficiaries directly on your accounts.

3. Retain Full Control During Your Lifetime

With TOD and POD designations, you remain in complete control of your assets while you’re alive. You can update or change your beneficiaries at any time without needing legal approval.

TOD and POD Considerations

TOD and POD designations are not allowed in all states, or on all assets in all states. For example, the State of Louisiana does not allow a TOD to be added to all types of non-retirement accounts. It’s important to check with the laws in your state before moving forward with adding these designations.

Final Thoughts

Adding TOD and POD designations to your financial accounts is a simple yet powerful way to ensure a smooth transfer of assets to your loved ones. While again they do not replace a comprehensive estate plan, they are an excellent tool to complement other strategies. If you have non-retirement investment accounts and are curious if adding a TOD to it is right for you, please reach out. We’d be glad to help.