What Are They?
The term POD stands for payable on death; TOD stands for transfer on death. It is possible to start a POD account at a bank. When you open a POD account, you name a beneficiary. This individual would assume ownership of the assets that remain in the POD account after you die.
There are brokerages that provide payable on death options as well. You could use this option to arrange for the transfer of ownership of securities after your passing.
Why Not Use a Will?
You may wonder why someone would want to use a TOD or POD account rather than arranging for the transfer of their assets through the terms of a last will. The reason why people see payable on death accounts as being appealing on some level is because they facilitate the transfer of assets outside of probate.
Let’s say that you maintain sole personal control of the assets in your bank account, and you express the way that you want the assets to be distributed after you die in your will. The assets will not be distributed until your estate has been probated. This process can be time-consuming.
On the other hand, with a payable on death account, probate would not be a factor. The beneficiary could present a death certificate to the bank or brokerage and have access to the funds in a more timely manner.
This is not to say that you should use a payable on death account instead of a last will. We are just explaining the surface appeal of these accounts.
Problems With Payable on Death Accounts
Most people who have a thorough understanding of estate planning would not consider a payable on death account to be a comprehensive solution. There are problems that can arise with these accounts, and they constrain you with limitations.
For one thing, the assets in the account would not be accessible to the beneficiary if you were to become incapacitated. There is no asset protection, and you may not be able to add multiple beneficiaries without allowing for an equal split of the assets that remain in the account.
Some people give verbal instructions to a single beneficiary. They instruct this individual to distribute the money in the account among multiple inheritors. From a legal perspective, the beneficiary is not required to follow these instructions.
There are better solutions that can be tailor made to ideally suit your needs.
Letter of Final Instruction
If you are going away on a vacation and you have someone house sitting, you will leave behind a set of instructions. In a similar manner, when you are planning your estate you should leave a letter of instruction that includes all relevant information that your representative will need.
Someone must take action after you pass away to initiate the postmortem process. This can be an executor or a personal representative. A family member who does not have a formal title may alternately be in charge of setting the wheels in motion.
This individual must have access to a great deal of relevant information. If you don’t leave behind specific instructions, the process will be tedious and time consuming.
When you are proactive about making relevant information available, you streamline things considerably.
Here are some of the things that should be included in your letter of instruction.
Notification of Death
A number of different individuals and entities must be apprised of the fact that you have passed away. Your letter of instruction should list the people and entities that should be notified. It should also include contact information.
These would include various professionals like your attorney, your broker, and your accountant. Banks where you have accounts should be notified, and insurance representatives should be notified as well.
Government agencies like the Social Security Administration should also receive a notification of your death.
Your letter of instruction could provide specific directions regarding your final arrangements. There are many different options available, and a multitude of decisions must be made.
Family members may not always agree with regard to the final arrangements. You can eliminate the possibility of family disputes by stating your own wishes in your letter of instruction.
In addition to this, you may have a very clear vision with regard to how you want your final arrangements handled. By leaving behind specific instructions you can make sure that your vision becomes a reality.
Now that we live in the Internet age you should also leave information about your online accounts in your letter of instruction. This can include financial institutions and credit card companies.
Schedule a Consultation!
If you would like to discuss your legacy goals with a licensed estate planning attorney give us a call at 586-493-7661 to schedule a no-obligation consultation.