It’s important to have protections in place so that when you die, what you leave behind gets to the people you want. If you are partnered, but unmarried, and die without a Will, your estate could get tied up in probate and whomever the court determines is your nearest relative will walk away with a fatter purse – and that might not be your partner.
To make sure that doesn’t happen, you need things in place so that after you die your assets go to your partner, a relative, or even a friend of your choosing.
I’ve blogged about using a Will to make this happen. Another, and often more straightforward, mechanism to do this is through PODs, TODs, and beneficiaries.
Again: I am not a lawyer, nor do I play one on TV or the internet. This is not legal advice and you should always consult with a lawyer for legal matters. If you trust a random blogger on the internet to give you legal advice, you should have your head checked.
This post is US-centric. I am totally unfamiliar with how these matters are handled outside of the US.
Payable On Death
POD stands for Payable On Death and is an account type supported by most, if not all, financial institutions. While you’re alive, a POD account is entirely your own and the person set up to receive it upon your death has zero access to it. When you die, the designated person presents proof to the bank of your demise, and then the accounts are transferred to them, bypassing your Will and probate altogether.
PODs can be changed at any time without witnesses or even a notary. There are additional wrinkles if you are married and the POD designee is not your spouse, however.
Contact your bank to have your checking, saving, and money market accounts set up as a POD account to the person of your choosing. You might even be able to do it entirely online. You will likely need the designee’s social security number.
See this page for further reading on PODs.
Transfer On Death
TOD stands for Transfer on Death and is for investment and brokerage accounts. They act pretty much exactly like PODs – you specify who should get the account assets upon your death, but you alone have access to the accounts while you are alive. Also like PODs, they bypass probate.
Set up your TOD beneficiary through your investment firm’s website.
Retirement accounts like IRAs and 401ks have a similar mechanism that can bypass probate: beneficiaries. Like the other two, these individuals have no access or authorization on the accounts until your demise, at which time the retirement accounts will be paid out to them. Like PODs, retirement beneficiaries will likely want the beneficiary’s social security number so have that ready.
Updated to add: If you don’t specify a beneficiary distribution for an IRA account held at a financial institution, or if your primary beneficiary has pre-deceased you, then the beneficiary distribution outlined in the Terms & Conditions document from the financial institution will be the sole governing determinant of the beneficiary distribution. That language may or may not be in line with your wishes, so you should ALWAYS specify a beneficiary or beneficiaries when you open the account. And review those designations every few years, or when you have a major life event. [Thanks to Steve for this information!]
Specify your retirement beneficiaries through the website of the financial institution that manages your accounts.
No one wants to think about dying, but it is important to be prepared, particularly if you have a partner to which you are not legally married.
PODs, TODs, and retirement beneficiaries are a painless way to redirect assets to someone without the hassle of creating a Will. Wills are still important, particularly if you have any real estate, but probate-bypassing mechanisms can be useful and easy to set up.