Avoiding Probate Court: Payable on Death (POD) Designations Versus a (2024)

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Missouri law allows you to put POD (payable on death) and TOD (transfer on death) designations on most assets. A POD/TOD designation is something you set up on each asset or account through the financial institution where it’s held (e.g., it’s set up with the bank or brokerage house, etc.) It allows you to designate who will receive that asset upon your passing. That asset will then avoid Probate Court and automatically go to the designation person upon your death.

Our office is often asked by our clients if they need a Trust or whether they can get by with just putting POD designations on their assets. While PODs may sometimes suffice for simple estates and distributions, a Trust is highly preferred as POD designatins have some serious disadvantages and limitations when compared to using a Trust:

Children under 18 should not be named as a POD beneficiary - - that asset will end up going through a complicated Probate process called a Conservatorship. In a Trust, you can always provide that your assets will be used for the care of children without actually putting it in their hands until a designated age.
In a POD, payments to beneficiaries cannot be stretched out over time like a Trust (e.g., 1/3 at age 25, 1/3 at age 30, 1/3 at age 35, etc.)
It is difficult in a POD to split up the account in varying percentages to multiple people. That can easily be accomplished through a Trust.
Some financial institutions will not even allow you to name more than one beneficiary on your POD designation. With a Trust, you can name as many beneficiaries as you like.
If the person you’ve named as a POD predeceases you, that account may end up going through Probate Court and/or going to individuals that you did not intend. A Trust will always provide for a backup distribution plan if a named beneficiary predeceases you.
A Trust always provides for the management of your assets in the event you’re incapacitated and unable to handle your affairs while a POD does not.
A Trust can be used to protect your assets in the event a beneficiary is suffering from addiction issues and usually allows the Trustee to temporarily hold back that money until those issues are overcome. A POD designation will automatically put that money in that person’s hands regardless of that addiction.
A Trust can be used to provide for a beneficiary who may be going through a divorce, bankruptcy or lawsuit and to preserve and protect that money for them. A POD designation could put that money in their hands in the middle of that divorce, bankruptcy or lawsuit, thus putting that money in jeopardy of being seized by creditors or an ex-spouse.
People often lose track of their POD designations as they have to be made at each institution where an asset is held. With a Trust, all assets are simply titled in the name of your Trust - - it’s much easier to keep track of.

A Trust has much greater flexibility and advantages over a simple POD designation. While a POD/TOD may work for very simple situations, a Trust is the clear winner to manage, protect and distribute your assets to your loved ones.

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13321 N Outer 40 Rd #600
Chesterfield, MO 63017

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Disclaimer

The choice of a lawyer is an important decision and should not be based solely upon advertisem*nts. The information and materials on this Web site are provided for general informational purposes only, and are not intended to be, and is not, legal advice. This Web site attempts to provide quality information, but the law changes frequently and varies from jurisdiction to jurisdiction. The information and materials provided are general in nature, and may not apply to a specific factual or legal circ*mstance.

Understanding Estate Planning Concepts

Estate Planning: This involves making arrangements for the disposal of an estate to minimize taxes and ensure that assets are distributed according to the individual's wishes after their death.
Durable Power of Attorney for Healthcare and Healthcare Directive: This legal document allows an individual to appoint someone to make medical decisions on their behalf if they become unable to do so. It also sets forth guidelines for healthcare preferences.
Powers of Attorney: This grants another individual the authority to act on your behalf in legal matters.
Trusts: A trust is a legal arrangement that allows a third party, or trustee, to hold assets on behalf of beneficiaries. Trusts can help avoid probate and offer more control over how assets are distributed.
Wills: A will is a legal document that outlines how an individual wants their assets distributed after their death. It can also designate guardians for minor children.
Guardianship: This refers to the legal responsibility of caring for someone who cannot care for themselves, often minors or individuals with disabilities.
Probate: Probate is the legal process through which a deceased person's estate is properly distributed and debts are paid.

POD (Payable on Death) and TOD (Transfer on Death) Designations

Definition: These are designations made on assets or accounts that dictate who will receive the asset upon the individual's death without going through probate.
Advantages:
- Simplified transfer of assets.
- Avoidance of probate for designated assets.
Disadvantages and Limitations:
- Restrictions on naming minors as beneficiaries.
- Lack of flexibility in distribution.
- Potential complications if a beneficiary predeceases the account holder.
- Inability to manage assets for beneficiaries facing challenges like addiction, divorce, bankruptcy, or lawsuits.
- Difficulty in tracking multiple POD designations across various institutions.

Trusts vs. POD/TOD Designations

Flexibility: Trusts offer more flexibility in asset distribution, allowing for staggered payments and multiple beneficiaries.
Asset Protection: Trusts can protect assets from creditors, ex-spouses, and legal judgments, providing safeguards that POD/TOD designations may not offer.
Management: Trusts provide mechanisms for managing assets in the event of incapacity, ensuring continuity in financial affairs.
Complexity: While POD/TOD designations may suffice for straightforward asset transfers, trusts are preferred for more complex estate planning needs due to their versatility and protective measures.

In conclusion, while POD/TOD designations offer simplicity in asset transfer, trusts provide a comprehensive solution for managing, protecting, and distributing assets according to specific wishes, especially in complex scenarios. Consulting with a qualified estate planning attorney is essential to determine the most suitable approach based on individual circ*mstances.