Using POD and TOD Designations to Keep Assets Out of Probate

Probate is the legal process by which a court decides how your estate will be settled among your creditors, heirs and beneficiaries when you die. Because probate can be long, complicated and costly, many people choose to create estate plans designed to exclude sizable portions of their property from the process. That means putting a mechanism in place for the automatic transfer of an asset to a designated beneficiary.

Among the methods available for bypassing probate are “payable on death” (POD) bank accounts and “transfer on death” (TOD) bond, stock and brokerage accounts. Arizona law also allows people to pass their real property through a TOD deed. When these instruments are properly created, the subject properties do not pass under your will and so are not part of your estate for probate purposes.

With a POD or TOD account, you sign an authorization naming a person who will become the owner of the asset when you die. The beneficiary has no rights in the account during your lifetime and you may change the beneficiary at any time. Upon your death, by producing an original death certificate, your designated beneficiary will be able to take over the account and/or withdraw the funds.

A TOD deed is a similar instrument that is used for accomplishing an automatic transfer of real estate. This means executing a deed as you would in a land sale, but stipulating that the transfer does not take effect until your death. The TOD deed must be filed with the recorder’s office in the county where the property is located. During your lifetime, you can continue to use the property and to borrow against it. To change the beneficiary, you will need to revoke the deed and replace it with a new one.

Even though POD and TOD designations are excellent estate planning tools, there are important considerations to keep in mind. For one, if the named beneficiary dies before you, the assets will become part of your estate and be subject to probate. Therefore, it’s essential to keep your POD and TOD designations updated in order to assure their continued validity. At the same time, it is important to have a will in place, directing what to do with assets that were not transferred by other means. This is known as your residuary estate.

At Pennington Law, PLLC, we are committed to offering quality estate planning legal services to families in the greater Phoenix area. Working with one of our attorneys can give you the peace of mind that comes with knowing your loved ones will be provided for upon your death. Call 623-208-7867 or contact our office online to schedule a consultation. Home and hospital visits are also available.