People often look for so-called “simple solutions.” They hear about some type of shortcut that sounds good on the surface, and they buy into the notion hook, line, and sinker. In many cases, the results are not good.
With the above in mind, let’s look at TOD or POD accounts.
Adding a Beneficiary
When you open an account at a bank, you may be offered the option of adding a beneficiary. Many brokerages also offer this option. These accounts are called transfer on death (TOD) or payable on death (POD) accounts. They are are also referred to as Totten trusts.
If you create a payable on death account, the beneficiary does not have access to the funds while you are living, which some people might view this as a positive. However, if you become incapacitated, the beneficiary may not be able to access the funds without having to go through the expensive and time consuming legal proceeding known as conservatorship.
After you pass away, the beneficiary would inherit whatever remains in the account. This transfer of assets would take place outside of the legal process of probate.
Asset transfers that are facilitated through the terms of a last will are subject to the probate process. This process provides oversight, because the probate court supervises the administration of the estate.
At the same time, the process can be quite time-consuming. A straightforward case can take close to a year, and the heirs to the estate do not receive their inheritances until the probate process has run its course.
This can seem like a good way to facilitate future asset transfers. However, payable on death accounts are extremely limited in scope.
Some people will name a single beneficiary and instruct the beneficiary to distribute assets among multiple different people. As they say, verbal agreements are not worth the paper they are printed on. The beneficiary would not be legally compelled to follow these verbal instructions.
With a payable on death account, there is no way to account for the possibility of incapacity. Alzheimer’s disease is widespread among the oldest old, and Alzheimer’s is not the only cause of incapacity. A well constructed estate plan will include an incapacity planning component.
Asset protection can be a concern for some people. Assets that have been conveyed into a payable on death account are not protected from creditors and claimants.
These accounts provide no tax efficiency, and assets in a payable on death account would be counted if you were to seek Medi-Cal eligibility late in your life. Medi-Cal is a need-based government health insurance program that will pay for living assistance.
Many seniors do apply for Medi-Cal coverage, because Medicare does not pay for long-term care.
For these and other reasons, use of POD and TOD accounts are generally not a good solution for most situations. The benefits, but not the problems, of such accounts can be realized by the use of a comprehensive estate plan based upon a revocable living trust.
Estate Planning Consultation
You should be aware of all of your options when you are planning your estate. There is no reason why you should settle for limited solutions.
If you would like to discuss things with an experienced and qualified estate planning attorney, simply call our office for an appointment.