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Plan Well, Retire Well

Saving and investing your money

The Simplest Estate Planning Tool: POD

According to a survey conducted for in December 2009, 65% of Americans do not have a will. But here's the good news: Even without a will, you can manage who will inherit many of your assets and make it easy for them to take ownership of those accounts. This little tool could almost be called a secret estate planning tool because, based on the response in my workshops, most people don't know about it.

The tool is a POD designation, which stands for Payable on Death. You may also see it described as TOD for Transfer on Death or as a Totten trust. On many financial accounts such as checking, savings, and investment accounts, you can use it to designate who will receive the account upon your death. Just as you name the owners of an account when you set it up, you can add a Payable on Death designation that determines who gets the account upon your death.

POD accounts are a sort of trust. But unlike living trusts which are overkill for some people and can cost a significant amount of money, this tool is virtually free. It will take just a little of your time and maybe a trip to your financial institution. It's as simple as filling out the signature card for your checking account, just like naming a beneficiary on your IRA or life insurance policy.

When you pass away (for joint accounts, when the last owner passes away), the person you've designated presents a death certificate and proof of their identity to the financial institution. They are then made the owner of the account. Basically, it's no fuss-no muss.

People often tell me that they've simply added the name of a child or other relative as an owner of the account, so that person will inherit it when the original owner passes away. But there are risks with that strategy. The added owner can now do anything with the account that you can do: they could sell the stocks in an investment account or take out all the money from a savings account. What if that person goes through a divorce or gets sued? Does your account get listed as one of their assets, and could it be seized or divided as part of a divorce settlement? You might even owe gift taxes!

POD accomplishes the goal of passing the asset to your designee upon your death, but without any of those risks. Until you pass away, the person whom you designate as POD has no claim to the asset. They have no ownership rights and cannot access the account until they present a death certificate to the financial institution and take ownership of the account.

The amount of FDIC insurance on your bank accounts or NCUA insurance on credit union accounts could increase if you name more than one person in the POD designation on an account. Each beneficiary is insured up to $250,000. So if you name three different people in you POD designations on all your accounts at one financial institution, those accounts would be insured up to $750,000.

A POD designation provides no mechanism for managing your assets in the event of incapacity. For that, you'll need a Power of Attorney for property or a living trust.

In some states, you can even use POD for real estate and for vehicles. But points out some potential complications from having a POD designation as part of your property deed or vehicle title.

If you have both a will and POD designations, the POD and beneficiary designations will determine who inherits. So when you write or review your will, remember who you named in POD designations. Your will, titling of assets in joint ownership, POD designations, beneficiary statements, and trusts are the tools that make up your estate plan. They need to be in harmony, not in conflict. Your will controls only those assets which will go through probate – assets that are not handled by one of the other tools. You can learn more about these tools on our website, Planning for "What If...?"

So do yourself and your heirs a favor. Even if you don't have a will, do a little estate planning. Decide who should receive your financial accounts upon your death and complete POD designations for them. Then, if you don't have a will, put that on your to-do list for this year.

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