When it comes to titling assets and property it may seem as though there are an endless number of options. As the owner, the dizzying array of initials and legal terminology may not seem important when you are filling out the title to your car or your bank account; however, the reality is that the way you title property will have a direct impact on what happens to the property in the event of your death. Two sets of initials that you may have seen before, TOD and POD, are important to understand.
The initials POD stand for “payable on death” while the initials TOD stand for “transfer on death”. Both of these designations accomplish essentially the same thing with the only real difference being that a TOD designation is typically used for securities and investment accounts pursuant to the Uniform Transfer on Death Securities Registration Act while the POD designation is used for bank accounts and all other types of financial accounts.
As the name implies, a POD designation on a bank account allows you to designate a beneficiary who will receive the funds held in the bank account upon your death. This is not the same as having a joint account. In a joint account the joint account holder has equal access, and equal ownership rights, to the funds held in the account while you are alive. The beneficiary designated on a POD account does not have any rights or access to the account while you are alive. Upon your death, however, the beneficiary need only provide the financial institution with a copy of the death certificate and the funds will immediately be transferred into the beneficiary’s name. The same basic procedure applies to an account held as a TOD account.
To advantage to a POD designation on a financial account is that the assets held in the account bypass the probate process. Probate is the legal process typically required when an individual dies. During the probate process estate assets are frequently held up and may be inaccessible to beneficiaries. If you title your bank account as a POD account the intended beneficiary will not have to wait through the probate process.
One disadvantage to a capital POD designation is that if you plan to split the account funds among two or more beneficiaries in unequal amounts there is no way to do that with a POD designation. In that case, the best way to accomplish the goal would be to have the funds go through probate and provide specific instructions regarding the distribution of the account assets in your Last Will and Testament.