I often get questions at seminars about whether having a TOD (transfer on death) or POD (payable on death) designation on an account is a good idea or not. I recently met with a couple that told me that they had set up all of their accounts with TOD’s on them and therefore they were protected and did not need any other type of estate planning documents in place. I told them that the TOD may or may not prevent a death probate issue, but it certainly will not do anything for them should they become incapacitated and unable to manage that account any longer due to the incapacitation.
A TOD or a POD on an account will avoid death probate as long as the person named as the TOD or POD is still alive when the account passes on to them. If the person has predeceased the person making the designation on the account and the TOD or POD was never updated then the account will still pass through probate. There are many other issues one can run into by having a TOD or POD designation on an account. First and foremost, the TOD or POD designation will only ensure that the account will pass to the designated TOD or POD when you die. If you are still alive, but incapacitated that account will be subject to a court appointed conservator if you do not have a property power of attorney in place to manage that asset for you while you are incapacitated. Even if you have a property power of attorney in place the financial institution may not accept it, in which case you are in court going through a conservatorship.
The other issue with having a TOD or POD on all of your accounts is that if the designated person you have listed on the account becomes disabled and is receiving disability benefits and you die, that account will disqualify them from any further benefits.
Finally, by having a TOD or POD on an account you are passing that asset directly to the designated person. If you are doing this for a minor it can cause conservatorship issues for them. If you are passing it to someone with creditor problems it will be absorbed by the creditors. If you are leaving it to a person that later gets divorced the account you left to them by the TOD or POD designation is subject to the divorce proceedings if they have commingled it.
There are many issues with using POD and TOD designations on your account as a way to avoid the cost, delay and publicity of a probate. There is a much better way to plan your estate and it is through something called a revocable living trust. The trust will ensure that the assets avoid probate both while you are alive and when you die. The trust will also ensure the greatest amount of protection to the person receiving the asset.
Please feel free to call 888.222.1328 for a complimentary consultation with one of our experienced estate planning attorneys if you would like to learn more about how a revocable living trust works to protect your assets from probate, taxes, creditors, divorce, and long term care spend down.
Submitted by MH attorney and partner David T. Eastman
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At Morris Hall, we have focused our legal practice on estate planning for over 40 years. Along with estate planning, our attorneys help clients and their families with matters of probate, trust administration, wills, powers of attorney, business planning, succession planning, legacy planning, charitable gifting and other important legal aspects. We also have divisions in financial, real estate and accounting to help you incorporate all of your planning together, ensuring that everything works perfectly for your needs and situation. Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Tucson, Prescott, Flagstaff and Arrowhead. Our New Mexico offices are located in Albuquerque, Las Cruces and Santa Fe. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.