Beware of Direct Transfer Designations – TOD’s, POD’s and Simple Beneficiary Designations


Direct transfer designations, such as POD (death at death designation) and TOD (transfer-to-death designations) designations, and simple beneficiary designations, are mechanisms by which an account or other asset is transferred or transferred. paid on the death of the account holder or the owner of the asset to a beneficiary. They are often recommended by the account administrator, such as a bank, a broker or a life insurance company. Although these can be very effective and inexpensive ways of avoiding probate and transfer of assets at death, they are not without risks and challenges. A lack of consideration of the risks and benefits of these mechanisms can be disastrous. A carefully prepared succession plan takes into account and resolves all the risks and challenges of these mechanisms.

Advantages of direct transfer designations

Direct transfer designations, such as PODs and TODs, have several advantages. The most important benefits are that they are inexpensive and easy. Most institutions will allow you to make such designations as a service at no additional charge. They are simple to create, and there is no need for a lawyer or other professional. Most of these designations are done by account holders without any legal or professional advice or advice. Because of this simplicity, they are very popular.

The second advantage is that the payment or the transfer is more or less immediate and direct. When it is necessary to put money or other liquid assets immediately at the disposal of a child or grandchild for any purpose whatsoever, a TOD or a POD seems attractive at first glance. However, beneficiary transfers generally require application forms and supporting documentation. In reality, the process may take more time and effort than estate ownership (for example through a living trust or co-ownership with right of survivorship). Nevertheless, it is assumed that funds are readily available, which often drives people to choose direct transfer designations.

Indisputably, direct transfers can have unique benefits resulting from this direct payment, whether immediate or not. For example, if you are widowed and want most of your estate to be passed on to your children, but still want a particular asset, fund, account or benefit to be passed on to another significant spouse or a second spouse, without your children's involvement, a transfer may be justified. Of course, these circumstances are specific, unique and situational. The appropriate method for achieving the desired outcome depends on a thorough review of all options to ensure that the correct tool is selected.

The third advantage is that a direct transfer designation may avoid probate, provided that the beneficiary, transfer beneficiary or beneficiary is alive on the death of the account holder or holder. If the beneficiary passes before or after, the asset can be verified. Especially because the avoidance of probate may not be effective, TODs and PODs are of limited use in a carefully planned succession. Unsurprisingly, because they are available at little or no cost, they are often used for the sole purpose of avoiding registration as an inexpensive substitute for more comprehensive planning. Make no mistake: these devices DO NOT replace life trusts. If you have used TODs or PODs in your estate plan, especially if you have not done so without professional advice, you may want to consider carefully the many possible disadvantages of these tools and consider a planning technique. more appropriate.

In any case, these designations do not allow, at least effectively, to achieve several objectives that could be achieved by appropriate estate planning. For example, these devices do not avoid inheritance rights, do not reduce the risk of guardianship and do not allow the management of assets in times of incapacity or incapacity and can not not even avoid the approval of the asset.

In addition, such devices have several potential disadvantages, particularly if they are used without careful consideration or the advice of a lawyer. The major disadvantage of these plans is that they do not plan for the unexpected. In addition, the use of such designations may result in unlawful inheritance, result in or result in involuntary disinherence, prosecution or litigation, and may facilitate or encourage guardianship.

The limitations of such planning devices are discussed in more detail below, followed by a discussion of their potential drawbacks.

Direct Transfer Designations Do Not Avoid Inheritance Taxes

If you have an incident of ownership in or on an account or other asset, it will be included in your taxable estate for the purposes of the estate tax. Therefore, direct transfer designations are not appropriate tools for inheritance tax planning, if your intention is to remove the value of the estate from your taxable estate. Generally, unless there is another reason for exclusion from the account, the account will be included in your taxable estate notwithstanding the direct transfer designation.

POD and TOD can not avoid homologation

There are many cases where these techniques have been used to avoid probate, but the assets of the estate have nonetheless been licensed. Transfer to Death Designations are generally not made for personal property and may not be available to transfer such property. Under the recent law of Ohio, the deed of assignment in the event of death was not available for real estate held jointly with a right of survivorship, as it is the case for most real estate held by a husband and a wife. Whatever the case may be, if there are enough assets for probate, other assets will go through probate, even if liquid or other assets avoid the ## 147 ## # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # 39; approval.

In addition, these designations do nothing to protect the property of the administration by a guardian or curator in the event of incompetence or incapacity. They also do not prevent the challenge of a will, the appointment of an executor or any other dispute that may eventually be resolved by the Probate Court.

Finally, these designations will not avoid probate if the beneficiary dies before or after the account or the owner of the asset. The administration of probate may be necessary, while property that passes through trust will not need to be verified in the event of an heir's death.

Direct transfer designations do not avoid guardianship

Direct transfer designations do nothing to protect the assets of the administration by a guardian or curator in case of incompetence or incapacity. For more information on the danger of guardianship, consider that it Open letter to the congress, written by the National Association to End Guards' Abuse.

Direct Transfer Designations Can Create Illiquid Estates

A potential drawback of these designations, particularly when they are placed on all chequing, savings and investment accounts liquids, is that an estate may be rendered illiquid. Lack of liquidity can be a problem when real estate, chattels or other assets need to be checked. Administration of Estates and Estates Taxes must be paid. If the estates are not sufficient, the heirs may be required to return money to the estate or property may be sold at incendiary prices to meet their obligations. It is important to consider that ad hoc Asset level planning to avoid registration often leaves assets to be checked.

Direct Transfer Designations do not provide for contingencies

The major disadvantage is that these devices are generally limited and do not provide contingency. These plans very rarely answer the "What if?" matters examined by a carefully prepared succession plan. For example, what happens if the beneficiary or beneficiary dies shortly before or after the owner? In most cases, the designation will simply pay the estate of the transferee or deceased beneficiary. If, for example, the beneficiary is your son and he dies before you without a will, the account or asset will be paid in whole or in part to your daughter-in-law. You may wish that no part of your estate be passed on to your children's spouses to protect your grandchildren in the event of remarriage. In addition, if you intend to avoid the approval of your assets, you could fail in your efforts.

There are many examples of contingencies that a living or testamentary trust can deal with, which are generally not dealt with by PODs and TODs. What happens if the property intentionally passes or not to a minor? Do you want the property to be distributed to the minor as soon as it reaches the age of 18 or is emancipated, or do you prefer to protect the miners from their inexperience and lack of wisdom? in the management of their assets?

What happens if the heir has financial difficulties, lawsuits, judgment privileges, tax liens or similar problems at the time of your death? If you do not want your assets to pay third party claims on your heirs, you should consider an alternative to a simple TOD or POD.

What happens if your heir is in the process of divorce, dissolution, separation or any other marital difficulty? A TOD or POD may or may not be involved in such a dispute, depending on a number of factors and the law of your state.

What happens if an heir is mentally or physically disabled at the time of your death? If you want to protect this heir, you may want more than a simple TOD or POD.

What happens if an heir is suffering from an addiction or other addiction that could affect his ability to manage his business? TOD and POD clauses rarely protect a family from such eventualities.

What happens if an heir adheres to or becomes a member of a quasi-religious organization, a cult or any other organization under which your heir undertakes to surrender or to to hand over all his goods? You may not want your material goods to facilitate or benefit a cult.

What happens in case of conflict, dispute or prosecution? How should the dispute be resolved and on what basis?

Regardless of the "what if" issue that concerns you now, you should consider many eventualities. As a result, a carefully researched and well-written succession plan will consider and provide solutions to all these and many other problems. TODs and PODs simply do not have solutions, as they are not, in themselves, "plans".

Direct Transfer Designations May Result in Unintentional Disinheritance

Another disadvantage of direct transfers is that they can lead to involuntary disinheritance. This happens because people often use them to separate accounts. In other words, one person will choose an account with a TOD or POD designation for an heir and another account for another heir. This is often done to keep confidential account balances that can favor one heir over another. These can be disastrous in an estate plan. Let's take the following example:

Widow Smith has three children and three CDs. Two CDs are worth ten thousand dollars, but the third twenty-five thousand dollars. Smith's eldest daughter lives very close to him, is often helpful in Smith's daily activities and is Smith's appointed attorney. Smith pays the largest CD payable on death to the eldest daughter, but the rest is paid by the other children. Unfortunately, Smith suffers a stroke and undergoes a long period of recovery, including a stay in a retirement home. The expenses require that the girl, now acting by proxy, liquidate one of the smallest CDs and the largest cash, of which she spends ten thousand dollars. Assuming that the only remaining assets at Smith's death are the check account, which is now worth only about $ 15,000, and the remaining $ 10,000 CD, you can see how the POD could not fulfill his wishes. The chequing account is divided equally among the children ($ 5,000 each) (Widow Smith probably assumed, like many people, that the chequing account would contain only a token amount of money on the account, which may not be true because the family has medical problems or other crises). Therefore, instead of the eldest daughter receiving twenty-five thousand dollars, she receives only five thousand. One of the other children receives fifteen thousand dollars. It is obvious that the results did not correspond to Widow Smith's intentions.

A factual lawyer can change your wishes

Most people who have used direct transfer designations assume that their estate plan is defined and their wishes will be followed. Unfortunately, nothing could be further from the truth. A direct transfer designation is usually a contractual right, which can be changed by a lawyer. In addition, an asset may be transferred and the designation "canceled" by anyone with authority over you or your estate, such as a guardian or custodian. Bottom line? A beneficiary designation is simply not an adequate estate plan for most people.

Direct transfer designations may lead to prosecution or litigation

For all of the above and countless reasons, direct transfer designations may result in contestation of your estate and may encourage, rather than discourage, litigation and litigation. Nothing can replace a carefully researched and well-written trust to ensure that your wishes are expressed and realized.

Direct transfer designations can facilitate or encourage guardianship

In particular, because they can create expectations in the minds of the heirs, and their use certainly does not discourage and can not encourage conflict, their use in your estate plan could even encourage a request for guardianship from a family. well-intentioned heir. seeks to protect their heritage from others.

Guardianship may be necessitated by the transfer of assets to potential beneficiaries, such as minor grandchildren. Since the purpose of these designations is, in part, to avoid probate, carefully consider their use in an estate plan.


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