The Uniform Transfer on Death Security Registration Act is a law that gives people the ability to name beneficiaries who will inherit their stocks, bonds, bank accounts, and other securities without having to go through probate. You can achieve this goal by using a “transfer on death” provision (TOD) or a “pay on death” provision (POD) on the accounts. TOD provisions refer to beneficiary designations on securities accounts and POD provisions are for bank accounts. While you can choose to use a POD or TOD on bank and investment accounts, if the account has multiple owners, the account will not pass on to the beneficiaries until the last owner passes away.
Why Add a Payable on Death (POD) or Transfer on Death (TOD) Provision on Your Accounts?
A POD or TOD provision does not affect account ownership until after you die. This means that you can make adjustments to these accounts without any of the beneficiaries’ consent or knowledge until you pass away. Further, both POD and TOD provisions avoid probate if the accounts are under your name when you pass away.
Are There Any Disadvantages to Placing a Payable on Death (POD) or Transfer on Death (TOD) Provision on Financial Accounts?
Financial accounts with a POD or TOD provision are not subject to a Last Will and Testament. This means that you must give additional instructions in your will regarding those accounts. Likewise, a POD or TOD provision will overrule any instructions you state in your trust documents regarding those accounts. Because a TOD and POD will trump your other estate planning documents If you are looking for a flexible distribution plan these accounts may not be for you.
How to Add a POD or TOD Provision?
If you are thinking about adding a POD or TOD provision, reach out to your account representative at your financial institution. These provisions are fairly common so most financial institutions will simply require you to fill out a form that has specific instructions, rules, and limitations on adding a POD or TOD provision to the account.
What are the Tax Implications in Adding a POD or TOD Provision?
While a POD or TOD allows your accounts to avoid probate, the assets within the accounts are still calculated when the government determines the value of your taxable estate for federal or state estate taxes. Further, beneficiaries of a securities accounts with a TOD designation will receive a step-up in cost basis upon your death. This is an important fact to understand because it means that when they receive the securities account upon your death, the fair market value will be the value of the account at the time that you passed.
Contact our DC Attorneys for More Information
For more information on what is “The Uniform Transfer on Death Security Registration Act”, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding probate law, check out our blog.