ISSUE #1
Payable-on-Death Arrangements

A Payable-on-Death (POD) arrangement allows you to name a beneficiary on your bank account. A very similar arrangement, called Transfer-on-Death (TOD), allows you to name a beneficiary for your stocks, bonds and mutual funds. POD and TOD accounts are very useful estate planning tools because they help you get your assets to your beneficiaries with a minimum of delay. Here are some important pointers to keep in mind about these accounts:

1. Payable-on-Death — POD accounts are available at banks and credit unions at no cost. You can set up POD beneficiaries for your savings account, checking account, savings bonds and certificates of deposit. When you request a POD account, your bank will provide you with a simple form for naming your beneficiaries. You simply fill it out, sign it and return it to your bank. At some banks, POD accounts are called Totten Trusts, which is an older name for the POD arrangement.

2. Transfer-on-Death — Like the POD arrangement, you may also name beneficiaries for your stocks, bonds and mutual funds using a TOD account. This is permitted in most states, but not all. It is also optional, as brokerage firms are not required to offer TOD accounts. Call your brokerage firm or your mutual fund company to see if it is available. Some firms may charge a modest fee for setting up a TOD account.

3. Avoiding Probate — POD and TOD accounts will pass directly to your beneficiaries at your death. These assets do not go through probate, which can take several months. Your beneficiaries will receive the funds within a few days or weeks after presenting the bank or brokerage firm with a certified death certificate. This quick transfer saves a lot of time and reduces probate costs.

4. Spousal Rights — Many states have elective share laws that protect the right of surviving spouses to receive a certain portion of the estate, regardless of the way beneficiaries have been named. This means that you cannot disinherit your spouse by naming other beneficiaries on your POD and TOD accounts. If you have questions about this and the way laws work in your state, please talk with your lawyer.

5. Alternative to Joint Ownership — POD and TOD accounts provide an excellent alternative to joint ownership. You may have considered naming a son or daughter as a joint owner of a bank account or investment account to avoid probate. Unfortunately, this strategy can put your account at great risk. A joint owner may withdraw all of the funds at any time, or your child’s creditors may attack up to half of the account. A POD or TOD arrangement is much safer, as your beneficiary has no access to the funds until you die.

6. Beneficiaries — One drawback to POD and TOD accounts is that they may restrict the way you can name your beneficiaries. You may be limited in the number of beneficiaries you can list, and you may not be able to name alternate or contingent beneficiaries. If you need a more complex beneficiary arrangement, a POD or TOD account may not be right for you. On the positive side, you can change your POD and TOD beneficiaries whenever you wish, simply by completing the form.

5. Naming Children — It is generally unwise to name a minor child as a beneficiary on your POD and TOD accounts. If you die before the child reaches adulthood, the funds will be held in trust until the child becomes an adult. This may interfere with the need to use the funds for the child’s on-going care and support.

6. Charitable Giving — It is simple and easy to use a POD or TOD account to arrange a gift for your favorite charity. You can control the exact amount, and you have full access to your funds as long as you live. A gift by POD or TOD will go right to the charity, just a few days or weeks after your death. This is an excellent way to leave a charitable gift in your estate.

If you own any bank or investment accounts, you should explore your options to set these up as POD or TOD accounts. Make sure you coordinate your POD and TOD designations with your Will and the rest of your estate plan. Your attorney can assist you in this process, making sure everything works the way you want.