POD AND TOD PITFALLS AND OPPORTUNITIES

A gumball machine full of money representing a pay on death bank account

Did you know that Hoosiers can cause their money and property to pass after death to their family members through pay on death (POD) and transfer on death (TOD) arrangements? This Article explains POD and TOD ownership and the POD and TOD pitfalls and opportunities.

POD and TOD Beneficiary Designations

Indiana’s Transfer on Death Property Act lets Hoosiers pass their money, homes, farms, vehicles, and other assets to beneficiaries after death with simple POD and TOD beneficiary designations. While POD and TOD mean nearly the same thing, POD causes a bank to pay money on the owner’s death, and TOD directs the transfer of investment accounts vehicles, land, and other TOD assets upon the owner’s death.

POD and TOD Pitfalls and Opportunities

Greedy POD and TOD Beneficiaries

POD or TOD designation works well when the beneficiary is the owner’s only child. However, we wrote in our last blog article about the problem of greedy people in joint tenancies with rights of survivorship (see https://www.hawkinselderlaw.com/joint-tenants-jten-and-hidden-jten-headaches-and-heartaches/). Likewise, if selfish POD and TOD beneficiaries don’t chip in to pay bills, they will leave other beneficiaries stuck paying the bills.

How POD and TOD Beneficiary Designations Usually Work

A deceased beneficiary’s share of their parent’s or grandparent’s POD or TOD asset passes to the deceased beneficiary’s children. If the deceased beneficiary’s child is also deceased, the asset passes down the family tree to the next generation of descendants.

Avoiding Accidental Disinheritance

An unexpected problem can occur if a deceased beneficiary was not the owner’s child or other descendant. In that case, the deceased beneficiary’s children would receive nothing.

If an owner wants to name a niece, nephew, or other non-descendant as a beneficiary, the owner can add “LDPS” (lineal descendants per stirpes) after the beneficiary’s name. The wording of that beneficiary listing may look like this: “[Owner Name], POD [Beneficiary Name] LDPS.” Then, if the beneficiary dies and the owner doesn’t update the beneficiary listing before dying, the asset will go to the deceased beneficiary’s descendants.

What Should Bankers and Financial Advisors Tell Customers About POD and TOD Pitfalls and Opportunities?

Smart representatives of banks and other financial institutions should discourage customers from making joint accounts with non-spouse family members without advice from reputable estate planning lawyers. Similarly, banks and investment advisors should discourage designating individual POD or TOD beneficiaries without sound legal advice.