Two-thirds of U.S. adults have no will. That means many Americans do not handle their affairs post-death. It is a topic people prefer to refrain from discussing or dealing with. Unfortunately, they leave their dying intestate for grieving family members and other potential heirs to settle the descendant’s affairs.  Considering this, people without a will should add a pay on death or transfer on death to their assets. Doing this will not address everything but handle a person’s assets.

What is a pay-on-death clause?

An owner designates a beneficiary directly for an asset. The assets remain in the owner’s name, and the asset does not transfer to the named beneficiaries until the owner’s death. Named beneficiaries have no access or control over a person’s assets while the owner is alive. 

What is the difference between pay on death versus transfer on death?

Individuals with an account or certificate of deposit (CD) at a bank or credit union can add Pay on Death (POD). Brokerage accounts, stocks, bonds, and other investment types can add Transfer on Death (TOD).  In some states, vehicles and real estate can be transferred too.  The state of California does allow TOD for vehicles and real estate.  Owners can elect one or multiple beneficiaries.   If the account holder lives in a community property state, then look at state laws on how a POD or TOD can be affected.

What are the advantages of doing this?

• It is a way of avoiding probate court, which can take time and be costly.
• Regarding bank accounts, FDIC insures each account up to $250,000 per insured bank and per account owner.  The law looks at PODs as trust accounts, and the FDIC rules for trust accounts differ from individual accounts with insured banks. Regarding trust accounts, FDIC covers $250,000 per beneficiary or up to $1,250,000 per insured bank.
• There can be more than one beneficiary listed on the account. You should check with your state laws if the owner wants each beneficiary to receive unequal portions of the assets in the account.
• POD or TOD are more powerful than a will.

What are the disadvantages of doing this?

• You cannot list an alternative beneficiary to the account. This is a drawback if the beneficiary dies before the owner since the assets will automatically transfer to the estate or will. However, you can help reduce this by listing multiple beneficiaries. 
• If an owner has multiple beneficiaries, the process could become complicated. Plus, divvying up the assets may require negotiations and compromises among beneficiaries.
• Assets are subject to applicable estate taxes, capital gains taxes, and inheritance taxes
• Assets are still considered to be a part of the decedent’s estate.  That means creditors can request debt repayment before beneficiaries can access the decedant’s assets.

How does the process work?

To set up a POD or TOD account, you must contact your bank, credit union, or brokerage account and complete their forms designating the beneficiary or beneficiaries upon the account owner’s death.  This is a simple process.  For the state of California, a person must complete a California TOD deed for their real estate. When adding a TOD for vehicles, the owner will need to complete a New Registered Owner section and submit it to the DMV.

Beneficiaries can receive benefits after providing a death certificate and providing any necessary documents and completed forms.  Keep in mind, that each bank, credit union and brokerage account will have their own forms and requirements.

STAGES is here to be a resource for you and your loved one.