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Mentor RIA Consulting

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Why POD TOD May Not Be a Good Plan

Posted on September 27, 2016 at 12:41 PM
Even with the federal estate tax currently at an all time low in its effective reach to the public, the costs of estate planning can be substantial. Despite the benefits of such planning, many people seek an approach that is easier to understand and implement. One such approach, often highly touted by others than estate attorneys, is the use of the pay on death or take on death designation for assets such as bank accounts and brokerage accounts, among other things.

The POD/TOD approach makes it fairly easy to name one or more persons as the recipients of assets upon the current owner’s death. No need to get legal assistance or court approval for the transfer, and no complicated documents to execute. Sounds great, doesn’t it?

Well, in some fairly limited situations, this approach may work out just fine. The problem is that in many situations the POD/TOD approach will cause more problems than it avoids. For example, say that you are the personal representative (whether named in a will or by a court) for a deceased person. Your tasks include gathering assets to pay the decedent’s debts and the costs of the administration of the estate, potentially including funeral costs, taxes and more. If all the liquid assets of the deceased have passed to other persons by way of the POD/TOD designation, you will not have easily obtainable resources to pay these costs. Even worse, if the recipients do not cooperate with you in addressing these costs, perhaps you will have no other assets and only liabilities.

Another less likely but still possible problem may arise where the named taker dies before the account owner and those who succeed to the interest are either undesirable recipients in the view of the owner or perhaps minors who cannot act for themselves. Other non-preferred outcomes may arise, depending on the individual’s personal situation.

Finally, one important and sometimes overlooked aspect of estate planning considers what to do if the owner becomes incapacitated and cannot act for him or herself. The POD/TOD designation does not apply here and provides no guidance on how the owner’s affairs should or could be handled. It certainly is not an answer to most people and you should consult with a trusted adviser – preferably an attorney or experienced financial adviser – before committing to a “plan” based on POD/TOD.

Categories: Clients, Planning

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