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Payable on Death/Transfer on Death – Good planning?

I often get asked by folks whether having a financial account with the designation “POD” (payable on death) or “TOD” (transfer on death) is good planning for their family. My answer is that it may be adequate planning in certain circumstances, but to call it “good planning” is a bit of a stretch.

Here are some points to consider:

  • What is the size of the entire estate? In Arizona, a probate can be triggered if the estate is valued over $75,000 (cash, retirement, life insurance, etc.) or if real property is valued over $100,000. Account(s) having a POD/TOD designation will not go through the probate process, but rather go directly to those individual(s) named. Unfortunately, relying solely on POD/TOD is risky planning because accounts can often times be forgotten and not designated accordingly causing an expensive probate. Or worse yet, forgetting to change the POD/TOD designations when life happens (death, divorce, birth, etc.)

 

  • Who are the beneficiaries? Having accounts POD/TOD to minor beneficiaries is a huge mistake if they are still minors at the time the account holder passes away. Why? As a minor, he/she will not have access to the account, but rather will have to have someone petition the court to be his/her conservator to be in charge of the account funds until the age of 18 years of age is reached. The conservatorship process is often referred to as the “living probate”, and is an expensive court process. Also, if the beneficiary is receiving government benefits due to special needs, the beneficiary can potentially be kicked off the government benefits due to the inheritance.
  • What happens if the account holder becomes incapacitated? Accounts with POD/TOD only spring into action when the account holder passes away. If the account holder becomes incapacitated, who will be in charge of the account? The account holder’s Agent under a duly executed Property Power of Attorney may be sufficient to access the account. However, often times the financial institution will require its own form(s) to be completed along with the Power of Attorney. Unfortunately, the account holder will be unable to complete these form(s) because they don’t have the requisite capacity. Result? A conservatorship process will be necessary to access the account on behalf of the incapacitated account holder.

 

POD/TOD designations can be adequate planning in limited circumstances when the size of the estate is far below the Arizona probate threshold. However, there are numerous other factors as highlighted above that should raise your eyebrows when it comes to making your account designated as POD/TOD. As the saying goes, it’s better to be safe than sorry, so schedule a complimentary review of your estate today to determine which estate planning option is best for you and your family.

What the Attorneys of Morris Hall Can Do For You:
The attorneys at Morris Hall have 100’s of years of combined experience ensuring that families’ assets are protected from probate, unnecessary taxes, creditors, ex-spouses and Medicaid spend-down.  The attorneys also help those in Arizona and New Mexico to apply for and receive Medicaid assistance and Veterans Benefits.  Our Arizona offices are located in Phoenix, Mesa, Scottsdale, Cave Creek, 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.

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