What Is a TOD Beneficiary?

POSTED ON: June 28, 2022

A person named as a transfer on death (TOD) beneficiary for an account will receive the assets held in it when the account owner dies, but Louisiana has special rules.

What Is a TOD Beneficiary?

TOD means “transfer on death”.  This is the person or persons named on your bank account to have the account transferred to upon death who legally becomes the owner of the bank account after you die.  Investopedia’s recent article entitled “Who Can Be a Transfer on Death (TOD) Beneficiary?” explains that the rules are quite broad when it comes to naming TOD beneficiaries.  But a TOD applies to most common law states, not Louisiana.

In Louisiana, we do not have what I would properly term a “transfer on death” statute.  We have a POD, meaning “Payable on Death” statute.  What is the difference?  A POD statue allows the bank to pay out the account balance to the payee named by you, but is not necessarily the proper owner of the account balance as per your last will and testament, or alternatively, Louisiana’s intestate inheritance regime.

In other words, the bank is authorized, even directed, to pay out your bank account balance to your person(s) named in your POD, BUT PURSUANT TO LOUISIANA LAW, THAT ASSET STILL HAS TO GO THROUGH PROBATE.

For example, assume you are a widow or widower, and you have two (2) children, Bob and Betty.  Your bank is Chase Bank, and you have a $100,000 in your bank account balance.  When you are at your local Chase branch, you talk to your banker and name Bob the 100% POD designee on your death.  However, your will provides that Bob and Betty share 50/50 in your estate.  Here is the potential problem.  At your  death, Chase bank pays out $100,000 as you specified, but Betty is allowed 50% of that bank account balance under your will.  In other words, Betty has the right to sue Bill for her share in a probate proceeding.

Unless your POD designations mirror your overall estate plan (or if you don’t have an estate plan, then the laws of intestacy, that is, death without a will), you may be creating a litigation nightmare for your heirs.  Read this blog article I wrote on the subject here: What Is a POD Account? A litigation time bomb.

But it is not necessarily all bad news.  A POD designee can be a person, charity, business, or trust, and here are some reasons why this may be a good idea.

Naming a payee on death (POD) beneficiary for your accounts can make the inheritance process much simpler for your heirs and family. That’s because your named beneficiary will automatically get the assets in the account. Although it technically would not bypass probate, if the persons who are designated on your POD are the same persons (with the same percentages) that would inherit under your last will and testament or through intestacy, then there is little risk of litigation or other controversy.  In other words, your POD designations should mirror your estate plan, not conflict with it.

You can also typically name as many POD designees as you like. You can use these to specify the percentage of assets that each designated beneficiary should get.

Note that with POD registration, the named beneficiaries have no access to or control over a person’s assets when the person’s alive, so you retain total control over your assets until you pass away.

Just make sure that your POD designations do not conflict with your last will and testament, and you should be ok.  You should nevertheless speak with an estate planning attorney about this, especially if you have a large bank account balance that you are planning to leave to heirs via a POD designation.

BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.

If you liked this article, “What Is a TOD Beneficiary?” read also these additional articles: Can My Gun Collection Be Part of Estate Plan? and How Do I Pick a Life Insurance Beneficiary? and How Do Estate Plans and Trusts Work? and What Should I Know About Buying Funeral Services?

Reference: Investopedia (May 19, 2022) “Who Can Be a Transfer on Death (TOD) Beneficiary?”

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