You hear a lot of legal and financial terms when you start planning your estate that you may not be familiar with, and they come with an alphabet soup of acronyms attached to them that can make deciphering the jargon all the more difficult. One of these is the POD account, and when it is being used in an estate planning context the acronym POD stands for “pay on death.” You may alternately see the initials TOD, and these stand for “transfer on death,” but they both refer to the same types of accounts.
The way that a pay on death account works is that you fund the account at a bank or a brokerage house. You are the owner of the account and you can do whatever you want to do with the assets that you place into the account, but you name beneficiaries. If you were to pass away, your beneficiaries would assume ownership of the assets in the account. The transaction does not have to go through the costly and time consuming process of probate and your heirs receive their inheritances in a fast, efficient, and stress-free manner. In addition to bank and brokerage accounts, you can also name a POD beneficiary when you purchase United States Savings Bonds. In some states you can even transfer ownership of a vehicle in this manner as well.
The fact that POD and TOD accounts are revocable is part of their appeal. You have complete control of the funds and/or securities that you placed into the account, and you can change the beneficiaries at any time and even close the accounts should you choose to do so. Pay on death accounts are a very useful estate planning tool that can make a lot of sense depending on your wishes and the size and scope of your estate.
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