Potential Problems with Transfer on Death Accounts

Transfer on Death Accounts

• Transfer on Death (TOD) and Payable on Death (POD) accounts can unintentionally change inheritance plans.

• Life changes, such as selling a home, can shift large assets into TOD/POD accounts.

• Unequal distribution from TOD accounts can cause family disputes and legal challenges.

• Regularly review beneficiary designations and consult an estate planning attorney.

Transfer on Death Accounts – Links

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Watch this episode (“Potential Problems with Transfer on Death Accounts”) on our YouTube Channel
Great post from Mike Piper CPA: Reasons Not to Use ToD/Pod (Transfer on Death / Payable on Death) Beneficiary Designations

Transfer on Death Accounts – Transcript

We’ve seen lots of examples where folks can set up a transfer on death account (TOD), and it really works out as a good planning tool to send assets directly to a specific person, after the account owner passes away.

But how about an example of where a transfer on death (TOD) situation can go wrong?

And unfortunately, we’ve seen examples of this and heard examples elsewhere, so I’m going to give you a scenario that happens more than it should.

We’ve got a situation where Mom lives alone. She’s got three adult children. She’s got two sons and a daughter. The two sons don’t live in the area. In fact, one son has moved out of state.

The daughter lives close by. And she is the one that picks up the slack.
She does a lot of things with mom. She’s with mom a lot.

She… all the things that would fall in the “help mom” bucket are winding up in the daughter’s lap.
So she’s doing a lot of this work.

Mom’s original plan after she passes away is that a third of the assets go to each of her children.
A third, a third and a third.

But she wanted to do something a little extra, a little bonus, if you want to call that, to her daughter. Because her daughter is the one that’s been around, helping Mom, over the years.

And so what they did was, Mom had a little brokerage account with a couple of stocks and a mutual fund in there. And so they set that account up as a transfer on death (TOD) account.

So that the day that Mom passes away, all of this transfers, on Mom’s passing, to the daughter.

Fast forward a few years.

Mom decides that the house that everyone grew up in, is really getting too big. She decides that she wants to downsize, and so she sells the house.

And at the time, banks weren’t paying any interest at all. So all of that money went into her brokerage account.

Yeah, that brokerage account. The transfer on death (TOD) brokerage account.

Now, the lion’s share of her liquid assets are sitting in a transfer on death account.

So fast forward a few MORE years, nothing’s changed.

The money is still in the same place. Mom passes away.

And now, two thirds of her entire liquid estate is sitting in a transfer on death (TOD) account that’s going to the daughter.

The original plan was to have a third, a third and a third go to… split between the three children.
That’s obviously not going to happen now.

And so, we’ve seen examples where “chaos ensues.”

We’ve heard people say, “I’m going to get a lawyer!” Or “this is totally wrong!”
And now feelings are hurt and relationships are damaged.
It happens.
This is real life. And these are problems that a lot of people aren’t thinking about, when they’re setting up things like
“payable on death” (POD) accounts at the bank. Or a transfer on death (TOD) account with a brokerage firm.

And so again, this is not legal advice or even legal guidance.
You really need to consult an attorney on matters like this.
This (could become) is a serious problem for the next generation.