A POD or TOD Account May NOT be Right for You

As estate planning attorneys in Greenville, SC, a common question we receive is, “Why not just use Payable on Death (POD) or Transfer on Death (TOD) designations to pass on my assets and avoid probate?”  While POD and TOD accounts can be a useful tool in certain situations, relying solely on them to manage your estate may lead to complications.

What Is a POD (Payable on Death) Account?

A POD account is a type of financial account where the account owner designates one or more beneficiaries to receive the funds in the account after their death. Once the account holder passes away, the named beneficiaries can access the remaining funds without needing probate court approval. The same principle applies to TOD accounts (Transfer on Death). For the sake of simplicity, we’ll refer to both types as "POD" accounts in this article.

What Can Go Wrong with a POD Account?

In general, POD accounts are easy to set up and convenient, and we sometimes recommend this arrangement for certain clients. However, there are several potential pitfalls to be aware of. Many people mistakenly assume that having a POD account means their estate planning is complete. However, there are risks involved that could lead to unintended consequences. Here are some common issues that can arise with POD accounts:

1. Grandchildren Could Be Disinherited

Many people want to ensure that, if a child passes away before them, their share is passed on to their grandchildren. However, with many financial institutions, it is not possible to designate grandchildren directly on a POD form. This could result in grandchildren being unintentionally left out of your estate plan.

2. Expensive Conservatorship for Minors

Even if it is possible on the POD form to designate the child’s children to inherit if the child dies before the client, if the grandchild is a minor then a court-supervised conservatorship may be required to manage the minor's inheritance. This legal process can be both costly and time consuming.

3. Verbal Agreements Aren’t Legally Binding

Some people may rely on verbal instructions given to the POD beneficiary, like asking a sibling or close friend to use the funds for their minor children. However, these verbal agreements are not legally enforceable. Additionally, if the POD beneficiary passes away before you, there is no guarantee that the money will end up with your kids or the people you'd like to benefit.

4. Risk of Losing Eligibility for Government Benefits

If your beneficiary has special needs, inheriting assets through a POD account could affect their eligibility for crucial means-tested government benefits like Supplemental Security Income (SSI) or Medicaid. Similarly, if your beneficiary is in a nursing home or long-term care facility, the influx of inherited funds could disqualify them from Medicaid benefits.

5. Blended Family Complications

For individuals in a second marriage, blended family issues can arise with POD accounts. For instance, a husband and wife may set up a joint POD account, leaving the funds to their respective children upon the death of the surviving spouse. However, the surviving spouse could change the POD designation to benefit their own children, potentially disinheriting the other spouse’s children.

6. Problems if the Beneficiary is Incapacitated

If a POD beneficiary becomes incapacitated, a court-appointed conservatorship might be necessary to manage the inherited assets. This is an expensive and burdensome process that can delay access to the funds.

7. Inconsistency with the Rest of Your Estate Plan

POD accounts can sometimes contradict the provisions of a person’s Will. For example, if your Will specifies that your assets should be divided equally among your three children, but your POD account names only one child as a beneficiary, the POD designation will override the Will. This could result in the other children receiving nothing from the account.

Why a Comprehensive Estate Plan Is Crucial

While POD accounts can be a helpful part of your estate plan, they are not a comprehensive solution for transferring assets after death. To ensure that your wishes are fully carried out and your estate is properly managed, you need more than just a POD account. A comprehensive estate plan should include:

• A Last Will and Testament

• A Revocable Trust (possibly)

• A General Power of Attorney

• A Healthcare Power of Attorney

These documents provide a structured plan for the distribution of your assets, the management of your affairs if you're incapacitated, and the care of your loved ones after your death.

Contact Heritage Law for Estate Planning Guidance