Passing on Assets Outside of Probate: (Payable on Death (PODs) and Transfer On Death (TODs).
Some possessions are distributed to beneficiaries by the court (probate possessions) and some assets bypass the court process and go directly to recipients (non-probate assets). With POD and TOD accounts, the account owner names a recipient (or beneficiaries) to whom the account possessions are to pass when the owner dies. The account possessions likewise receive a “step-up” in basis when the initial owner passes away, suggesting that no capital gains tax need to be due if investments are liquidated in order to be moved.
For a variety of factors, people occasionally want some or all their possessions to pass straight to specific individuals upon their deaths, outside of probate. One method to achieve this is to set up a “payable on death” (POD) account for cash in a bank account or a “transfer on death” (TOD) account if funds are in a brokerage account.
Just the account owner has access to the assets while alive; the called recipients have no control over the account, and the owner can change beneficiaries at any time, if skilled to do so. If the named beneficiary predeceases the account owner, then the assets are distributed to the remaining beneficiaries or to successor beneficiaries, depending on exactly what the owner composes on the beneficiary designation type or online. If there is only one beneficiary and she or he predeceases the owner, and the owner makes not subsequent modifications to the beneficiary designation, the assets enter into the account owner’s probate estate.
Receiving possessions could be a problem for particular recipients, such as a youngster with unique requirements who depends on Medicaid and other public benefits. It might be recommended to do special needs planning to avoid the assets conflicting with the receipt of public benefits if the account quantity is big enough. (For more on special needs preparing, go to Special Needs Answers.).
Some attorneys prevent passing assets through accounts like these for the basic reason that people in some cases forget about the accounts, and their existence can confuse an individual’s estate plan. The will may state that everything ought to be distributed equally to the account owner’s three kids, but the POD or TOD account passes possessions to just one child, creating unequal shares among the kids.
Some possessions are dispersed to beneficiaries by the court (probate assets) and some assets bypass the court process and go directly to beneficiaries (non-probate possessions). With POD and TOD accounts, the account owner names a recipient (or beneficiaries) to whom the account possessions are to pass when the owner passes away. Just the account owner has access to the possessions while alive; the called beneficiaries have no control over the account, and the owner can alter recipients at any time, if skilled to do so.