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P.O.D. and T.O.D. Designations -- What Are These Things?

When working with clients on their estate plans, Fitzgerald Law Office will provide recommendations for coordinating the plan with the beneficiary designations for the client’s assets. Part of those recommendations will include guidance on P.O.D. and T.O.D. designations. This often prompts clients to ask, “What does that mean?”

Banks can offer “payable on death” designations for their accounts and certificates of deposit. Payable on death is often shortened to “P.O.D.” A P.O.D. designation is essentially a beneficiary designation that turns an account into an asset that automatically changes ownership at death. The P.O.D. designation essentially works like the beneficiary designation on a life insurance policy or retirement account.

Financial advisors and mutual funds operate under different laws than banks. If your financial advisor or mutual fund company wants to give you something like a bank’s P.O.D. designation, they have to call it a “transfer on death” designation, or “T.O.D.” While the name is different, it is essentially the same thing. When you put a T.O.D. designation on a mutual fund or investment account it automatically changes ownership at death.

The selling point of these P.O.D. and T.O.D. designations is that the automatic transfer will avoid probate. While people like to avoid probate, there are some potentially serious drawbacks to using these designations. Most importantly, P.O.D. and T.O.D. designations can destroy an estate plan if they are not carefully coordinated with an existing Will or Revocable Trust. Of course, if you have a Revocable Trust that avoids probate you might question why you would need to use P.O.D. or T.O.D. designations at all because you are already avoiding probate.

This highlights a second, very important, drawback to P.O.D. designations: While they seem simple and easy, using them properly actually requires a great deal of thought and care. If your bank’s personnel or your financial advisor are not actively reviewing your Will or Revocable Trust to ensure that everything is coordinated, then they expect you to be the one doing the double-checking and coordinating.

Not every estate plan needs P.O.D. designations or T.O.D. designations to be successful. If P.O.D. and T.O.D. designations are going to be a valuable tool in your estate plan, you will not only need to know exactly what they are, but also which accounts have them, what they say about your accounts and how they interact with your Will or Revocable Trust.

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