Tuesday, July 29, 2008

Pay-on-Death Accounts

A recent comment posted to my piece on understanding probate asked if Pay-on-Death cards should be used to avoid probate. The answer, in keeping with legal tradition, is that it depends on the situation.

Pay-on-Death (POD) or Transfer-on-Death (TOD) cards are types of a beneficiary forms, that when complete, make an asset non-probate. A POD is usually associated with banking accounts (savings, checking, money market), and a TOD generally accompanies a brokerage account. Upon the account holder’s death the asset will pass immediately to the person(s) listed on the card, avoiding probate. Advantages of PODs and TODs include an immediate transfer, whereas probate may take 12 to 18 months or longer. Also, by avoiding a probate transfer, the recipient is not responsible for the probate fee.

Two points of caution. First, a POD or TOD card may not provide ample room for contingent beneficiaries. And second, it is wise to have some assets remain under probate because money will be needed to pay final bills, taxes, and administrative fees. Funds left in your probate estate will be accessible by your personal representative to close out final expenses; otherwise your estate may be insolvent.

As always, it is wise to consult with an attorney or other trusted advisor prior to making estate planning decisions – including PODs and TODs.

1 comment:

Charles J Gervasi said...

I can completely understand people being too lazy to do their wills, but I can't understand someone not filling out a POD/TOD form at the bank. As far as the money in the bank goes, the TOD form works even better than a will and is much easier to fill out.