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Beneficiaries and contingent beneficiaries

By Terry Savage on April 04, 2016 | Financial Planning / Retirement

Terry, what is your opinion regarding POD’s or TOD’s (pay or transfer upon death) accounts? I think these are called poor man’s trusts. A way of allowing kids to realize savings and CD accounts if both parents die at same time. I think these require opening new accounts rather than making change to existing accounts. Comments?

Terry Says:  There’s nothing wrong with titling accounts POD — payable on death — IF you do it correctly.  And for small amounts that you want to leave to children or grandchildren, it is the easy way to do things.  BUT couple of issues come to mind.

First, you can’t make a minor a payee using this type of account.  If you did, the court would step in and name a public guardian, causing delays and potential expenses.  Second, you must be sure that this is the way you want this money distributed (although you can always change the payee).  But if your estate has expenses, and those must be paid by the estate, then having all your money distributed directly at death could force the executor to go after the payees to cover estate expenses.

And, if your estate is a large one — well over $5 million — then estate taxes could be involved (either state or Federal or both) — despite the direct distributions of POD and beneficiary accounts!

One final thought:  the use of a POD account allows the named person to take over at your death, but does nothing to solve problems if you are incapacitated by a stroke or dementia.

For all these reasons, I recommend seeing a qualified estate planning attorney to create a Revocable Living Trust.  The cost won’t make you a “poor man — or woman” — but it could save a lot of aggravation for your children.



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