What is a POD or TOD Account and Do I Need One?

As a widow or widower you may already have experience with a POD or TOD account. Let’s take a look at what a POD or TOD account is, how and why it might be used and, finally, how and when to manage it.

The Basics. POD stands for Payable On Death and TOD is Transfer On Death and they give certain accounts and investments a specific capability or attribute.  The POD and TOD attribute is added to certain accounts to provide a way to give ownership of the account to family or friends (your beneficiaries) once you as the main owner pass away. This attribute is similar to the way a beneficiary designation works on an IRA (Individual Retirement Account). 

The POD attribute is often offered by banks and credit unions for various banking accounts like checking, savings and CD accounts. If you have a brokerage account, like a Fidelity, Charles Schwab or TD Ameritrade brokerage account, the TOD designation is used, but works the same as the POD designation. The TOD attribute can even be added to stock and bond certificates.

Why should I add a POD or TOD to my bank or brokerage accounts? You may or may not want to add the POD or TOD attribute to your account. If you have a living trust in place, you probably don’t need to add POD or TOD to your bank or brokerage accounts because they are (should be) registered in the name of your trust (if you have such a trust and you haven’t titled these bank and brokerage accounts in the name of your trust, your trust may be considered unfunded and should be funded asap. Talk to your estate planning attorney about trust funding requirements). If you don’t have a living trust and don’t plan on getting one, adding POD and TOD to your banking and brokerage accounts helps you with two issues:

1. Upon your demise, POD and TOD accounts avoid the probate process; something you may want to avoid in your state. After your passing, the beneficiaries of the POD and TOD accounts can provide the bank or brokerage firm with your death certificate and the bank and brokerage will split these accounts according to the beneficiaries you set up on the POD/TOD paperwork.
2. Using POD and TOD designations allow the account owner to bequeath these accounts to the exact people and in the exact amounts you wish. We’ll get into several examples later in this post. This ability gives you, the account owner, control over your accounts, especially upon your death. POD and TOD accounts are not controlled by the owner’s Last Will nor their trust nor any other legal documents or structures other than the POD/TOD attribute.

What About a Joint Account? If the POD/TOD account is jointly owned between two spouses, and not only jointly owned, but specifically a Joint With Right Of Survivorship (JTWROS) account, at the passing of the first owner (first spouse), the surviving owner (second spouse) receives and owns the full account. The POD/TOD beneficiaries do not receive any of the account at the first owner’s passing. Only at the demise of the second owner (surviving spouse), do the POD/TOD designations kick in and the POD/TOD beneficiaries directly inherit their percentage.

Setting Up the POD or TOD Attribute. The account owner will fill out the POD/TOD paperwork with their primary beneficiary information including what percentage of the account the primary beneficiary(ies) receive. Dollar amounts are not used, just percentages. If there’s only one child as a primary POD/TOD beneficiary, they are set up at 100% beneficiary. If three children and/or friends are set up as primary beneficiaries, each can receive any desired percentage, but all three percentages add up to 100%. POD/TOD paperwork usually includes the ability to set up secondary or contingent beneficiaries. Contingent beneficiaries can be set up if you want a back-up plan should the primary beneficiaries predecease you.

Managing POD/TOD Beneficiaries.  Beneficiaries are not set in stone. Down the road if you want to add, remove a beneficiary or change the percentages, you are free to do so. As you go through life, it’s always good to review your POD/TOD beneficiaries periodically (or if you experience a significant life event) to make sure your accounts are set as you wish. Later in life if you have a trust created for you, these POD/TOD accounts should probably get registered/titled in the name of your trust. This first requires you to cancel your POD/TOD beneficiary designations.

If you are the surviving spouse and now own POD bank accounts and/or TOD brokerage accounts in your name, make sure to review the POD/TOD beneficiary designations for needed changes. 

In the end, POD and TOD designations are beneficial. Don’t pass up this valuable planning tool!

Lessons Learned:

• Bank and brokerage accounts can avoid probate, just like IRAs do, by adding the Payable On Death or Transfer On Death attribute to these accounts.
• Be vigilant by reviewing your beneficiary designations on your POD/TOD accounts periodically and after any significant life event or change in family dynamics.
• Consult with your estate planning attorney regarding the legal details of the POD/TOD account attribute in your state. If a trust is recommended for these bank and brokerage accounts, the POD/TOD designations will first need to be removed before registering these accounts in the name of your new trust.

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Jim Schwartz is a Scottsdale, AZ fee-only financial planner with an expertise and interest in financial planning and education for widows and widowers.  Years of working with and advising widows, widowers, and surviving partners has provided a wealth of experience and knowledge in this complicated financial arena.  He is particularly skilled in his ability to guide his clients through difficult decisions while ensuring the stability of their finances. 

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Jim Schwartz, CFP®, RICP®
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