Pay on Death and Transfer on Death Designations

Setting up a Transfer on Death (“TOD”) or Pay on Death (“POD”) designation on your bank account is a simple and easy way to keep bank account assets out of probate.  A TOD or POD designation is effectively a beneficiary designation, similar to beneficiary designations on life insurance policies and retirement accounts.  A TOD and POD designation is the same thing and these terms are often used interchangeably.

How Does a Transfer on Death or Pay on Death Designation Work?

When a bank account has a Transfer on Death or Pay on Death designation, when the account owner dies the assets in the bank account pass to the person(s) named to on the TOD/POD designation form.  Upon an account owner’s death, the beneficiary needs to submit a copy of the deceased account holder’s death certificate to the bank.  The bank will then give the beneficiary(s) the money in the account.

It is important to remember that during you lifetime, the person you named to inherit the money has no rights to that account.

How Do I Set Up a Transfer on Death or Pay on Death Designation?

To set up a TOD or POD designation on your bank account, you will need to go to your bank and fill out a simple form naming the person(s) you want to inherit the money in your account upon your death.  Once completed, the bank will keep a copy of your TOD/POD form on file.  Some financial institutions will even show the TOD/POD designation on the bank account statements.  If you have multiple accounts, you can designate different beneficiaries for each account.

If you decide you want to change your TOD/POD beneficiary(s), you may change your TOD/POD designation at any time by going to the bank and completing a new designation form.

Why Not Just Own the Account Jointly With the Beneficiary?

A Transfer on Death or Pay on Death designation is superior to owning the account jointly.  First, owning the account jointly can create creditor problems.  If you own an account jointly with your beneficiary and your beneficiary is sued, the assets in that joint account could be subject to the beneficiary’s creditor’s claims.  The asset could also be compromised if a joint owner were to get divorced as a divorcing spouse may try to claim a right to the money in the account.   Second, joint ownership makes it more difficult to sell or transfer an asset.  If you transfer assets into joint ownership and later want to sell or transfer the asset, you have to get your joint owner’s signature.  This issue can be further compounded with a joint owner’s divorce, incapacity or death.

How Will My Last Will & Testament Affect These Designations?

A beneficiary designation trumps the provisions of your Last Will & Testament.  If you create a Will stating that Bob is to inherit all of your assets and you’ve added a Transfer on Death or Pay on Death designation on your bank account saying Mary is to inherit the bank account, Mary will inherit the bank account.  Bob will inherit the other assets of the estate that aren’t subject to a beneficiary designation.