What’s the Difference Between Payable on Death and Transfer on Death?

When it comes to personal assets there are different types of ownership. After a person passes away, how those assets are distributed to their heirs depends entirely on the form of ownership. Unless certain arrangements are made beforehand, most assets will have to pass through the probate process before they can be distributed to the heirs. Probate can be a costly and lengthy process which can in large part, if not entirely, be avoided. This is often handled with payable-on-death (POD) and transfer-on-death (TOD) accounts.

1. Payable on Death Accounts. A POD account is recognized by the court as a valid method to avoid going through probate. Most every type of bank account is allowed to be a POD account.
2. The owner simply files the required forms with his bank to set up this account.
3. The beneficiary simply receives the funds when you pass.
4. This type of account can leave you in total control of your assets throughout your life.
5. You can change your beneficiary at any time, and take as little or as much money from your account at any time. This means that for as long as you are alive, the person who you’ve designated as the beneficiary has absolutely no right to the assets in that particular account.

2. Transfer on Death Accounts. The rules are similar for a TOD account. You can bequeath stocks, brokerage accounts, or bonds without them having to pass through probate. This works like a POD account, where you register your ownership and then you designate a beneficiary.

1. Once you’ve set up your ownership, your beneficiary has no rights to the assets as long as you are alive.
2. After you have died, the beneficiary can claim their securities without going through probate by simply providing identification and proof of your death to the transfer agent. A transfer agent is a business authorized to complete the ownership transfer of the asset from one person to another.
3. Your TOD beneficiary has no rights to the stock for as long as you are alive. You can give it away, sell it, name a different beneficiary or even close the account.

Sometimes people neglect to name a beneficiary, or they name someone who passes away before them and they hadn’t named a secondary beneficiary. In that scenario, those accounts are treated as if they did not have a beneficiary at all. When an account does not have a beneficiary, it will have to pass through probate.

For more information about POD or TOD accounts, reach out to an experienced estate planning attorney can count on.