Transfer-on-Death (TOD), Pay-on-Death (POD)

Lesson

Transfer-on-death (TOD) and pay-on-death (POD) accounts are estate planning techniques that allow assets to be transferred directly to beneficiaries upon the account holder's death, bypassing the probate process. These accounts can be used for various assets, including bank accounts, brokerage accounts, and real estate.

Practice Question #1

Which of the following accounts allows the account holder to designate beneficiaries who will receive the assets in the account upon the account holder's death, bypassing probate?

A) Transfer-on-death (TOD) account

B) Tenants in common account

C) Community property account

D) Joint tenancy with right of survivorship account

Select an option above to see an explanation here.

A) A TOD account allows the account holder to designate beneficiaries who will receive the assets in the account upon the account holder's death, bypassing probate. B) Tenants in common account does not bypass probate. C) Community property account does not bypass probate. D) Joint tenancy with right of survivorship account does bypass probate, but it is not the best answer because it does not involve designating beneficiaries.

Terms

Transfer-on-death (TOD):: A type of account that allows the account holder to designate beneficiaries who will receive the assets in the account upon the account holder's death, bypassing probate.
Pay-on-death (POD):: Similar to a TOD account, a POD account allows the account holder to designate beneficiaries who will receive the assets in the account upon the account holder's death, bypassing probate. POD accounts are typically used for bank accounts.

Practice Question #2

What is the primary difference between a transfer-on-death (TOD) account and a pay-on-death (POD) account?

A) TOD accounts are used for bank accounts, while POD accounts are used for brokerage accounts.

B) TOD accounts are used for brokerage accounts, while POD accounts are used for bank accounts.

C) TOD accounts require a will, while POD accounts do not.

D) TOD accounts are subject to probate, while POD accounts are not.

Select an option above to see an explanation here.

A) This statement is incorrect; it is the opposite of the correct answer. B) TOD accounts are used for brokerage accounts, while POD accounts are used for bank accounts. C) Neither TOD nor POD accounts require a will. D) Both TOD and POD accounts bypass probate.

Do Not Confuse With

Tenants in common:: A type of property ownership in which two or more people own the property together, but upon the death of one owner, their share does not automatically pass to the surviving owner(s) and instead becomes part of their estate.
Community property:: A type of property ownership in which assets acquired during a marriage are considered jointly owned by both spouses, regardless of who purchased the asset.

Practice Question #3

Which of the following is NOT a benefit of using transfer-on-death (TOD) or pay-on-death (POD) accounts?

A) Bypassing the probate process

B) Allowing beneficiaries to access assets more quickly

C) Avoiding estate taxes

D) Simplifying the estate planning process

Select an option above to see an explanation here.

A) Bypassing the probate process is a benefit of TOD and POD accounts. B) Allowing beneficiaries to access assets more quickly is a benefit of TOD and POD accounts. C) TOD and POD accounts do not necessarily avoid estate taxes. D) Simplifying the estate planning process is a benefit of TOD and POD accounts.

Historical Example

In the early 1900s, the concept of pay-on-death accounts was introduced by banks as a way to help customers avoid the lengthy and costly probate process. This concept gained popularity and eventually led to the development of transfer-on-death accounts for other types of assets, such as brokerage accounts and real estate.

Practice Question #4

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Example Series 65 Example Practice Question

Real-World Example

A widower with two adult children opens a transfer-on-death brokerage account and designates his children as equal beneficiaries. Upon his death, the assets in the account are automatically transferred to his children, bypassing the probate process and allowing them to access the funds more quickly.