As you likely know, assets and property can typically be titled in a variety of ways. How you choose to title property or accounts can have a significant impact on what will happen to the asset in the event of your incapacity or death. For some accounts and other types of assets you may be able to use a “Payable on Death” or “Transfer on Death”, ( POD or TOD ) designation to facilitate the transfer of the asset in the event of your death.
As the name “payable on death” implies, designating an account as a POD account means that the funds held in the account are to be paid out immediately upon your death to the beneficiary named by you when you designate the account as POD. This can be extremely important because a POD account passes outside of the probate process. Other assets owned by you at the time of our death will become part of the probate process, meaning they will be tied up in court until the process terminates. If your family will need access to funds when you die to survive and pay the bills, having funds help up in court is a problem. A POD designation may be the answer.
It is important to understand that a POD designation is not another form of joint title. The beneficiary you designate will have no legal authority over the funds held in the account during your lifetime, meaning that he or she cannot withdraw, transfer, or otherwise use the funds held in the account. Only upon your death will the beneficiary be given access to the funds.
Transfer on Death, or TOD, works essentially the same way as POD but for different types of assets. Where the POD designation is used for financial accounts, the TOD designation is frequently used for securities, vehicles, and even real property, depending on the state. In 2012, Illinois passed The Illinois Residential Real Property Transfer on Death Instrument Act which now allows you to transfer real property outside of the probate process in much the same way that you transfer funds held in a financial account with a POD designation.
While using a POD or TOD designation can allow you to transfer assets easily to loved ones when you die, there are disadvantages as well. Be sure that you consult with your estate planning attorney to determine how best to incorporate the POD and TOD designation into your estate plan.
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