It is not uncommon for people to look for easy answers, and this enters the realm of estate planning. Individuals sometimes hear about so-called “simple solutions,” and negative consequences often result. This can come into play when it comes to TOD or POD accounts.
These acronyms stand for “transfer on death” and “payable on death” accounts respectively, but they are more or less used interchangeably. These accounts are offered at banking institutions and many brokerages.
With a POD account you name a beneficiary. While you are alive the beneficiary does not have access to the funds that have been placed into the account. After you pass away, any assets that remain in the account pass directly to the beneficiary outside of probate.
In case you have never heard of probate, it is a legal process that an estate must pass through before the heirs receive their inheritances. It comes into play when you retain direct, sole ownership of property that you want to pass on after you die.
There are ways to arrange for asset transfers outside of probate, and the creation of a POD account would accomplish this objective.
POD Accounts: The Pitfalls
On the surface POD accounts can sound quite appealing. You don’t have to speak with anyone except your banking representative. At first you retain complete control of the assets. After you pass away, the resources go directly to your beneficiary, and it will all happen quickly because probate will notbe a factor.
This is well and good, but there are many gaps. For one thing, most people will want to give inheritances to multiple different people. It may be possible to add multiple beneficiaries, but you usually have to allow for each beneficiary to assume ownership of an equal portion of the remainder. This may not be in accordance with your wishes.
Another problem with a POD account in Davenport IA is the potential for an unwanted disinheritance. You are obviously going to add a beneficiary that you trust. However, there are no guarantees with regard to the actions of the beneficiary after you die.
If you instruct the beneficiary to distribute the assets in a certain way after your passing, he or she may or may not follow these instructions.
POD accounts will not protect assets from creditors or claimants, and there is also the matter of incapacity to consider. The beneficiary would not have access to the funds if you were to become incapacitated.
You can enjoy the benefits that go along with POD accounts without any of the pitfalls if you work with a licensed estate planning attorney to put a proper estate plan in place. If you would like to do just that, contact our firm to schedule a free consultation.