The Hidden Risks of POD and TOD Accounts in Estate Planning

August 14, 2025

Payable-on-death (POD) and transfer-on-death (TOD) accounts are popular tools in estate planning, and for good reason. They offer a simple, cost-effective way to pass assets directly to beneficiaries, bypassing probate and speeding up access to funds. But while they may seem like a straightforward solution, POD and TOD accounts can sometimes lead to unintended consequences.

Let’s explore the pros and cons, and when these accounts might not be the best fit for your estate plan.

What Are POD and TOD Accounts?

POD accounts are typically used for bank accounts, while TOD accounts are more common for investment assets like stocks and bonds. Both work similarly, you name a beneficiary, and upon your death, the assets transfer directly to that person, no probate required.

You maintain full control during your lifetime, meaning you can spend, invest, or close the account without needing the beneficiary’s permission.

The Upside: Simplicity and Speed

Here’s why many people choose POD and TOD accounts:

• No probate delays: Assets transfer quickly to beneficiaries.
• Lower administrative costs: Fewer legal fees and court filings.
• Easy setup: Just fill out a form with your bank or brokerage.

These benefits make them appealing for straightforward estate plans, especially when you want to ensure a spouse or adult child has immediate access to funds.

The Downside: Potential Pitfalls

Despite their simplicity, POD and TOD accounts can create complications:

• They override your will: If your estate plan isn’t coordinated, these accounts can conflict with your broader intentions.
• No control after death: You can’t set conditions or protections for how the beneficiary uses the funds.
• Risk of probate anyway: If your named beneficiary dies before you and you don’t update the account, the assets may still go through probate.

Unequal Treatment of Beneficiaries

You designate a $200,000 savings account as POD for one child and a $200,000 brokerage account as TOD for another. If the brokerage account loses value or you withdraw funds from the savings account, the result may be unequal inheritances — even if that wasn’t your intent.

When POD and TOD Accounts Make Sense

These accounts can be useful for:

• Simple transfers: Like passing a savings account to a spouse or adult child.
• Quick access needs: When immediate liquidity is important.
• Supplementing a broader estate plan: Especially when coordinated with a will or trust.

When to Consider Other Options

For more complex situations, such as blended families, minor beneficiaries, or significant assets, POD and TOD accounts may fall short. In these cases, tools like revocable trusts offer more flexibility, control, and protection.

Trusts can:

• Provide access to assets if you become incapacitated.
• Ensure equal treatment of beneficiaries.
• Include conditions for how and when assets are used.

Final Thoughts

POD and TOD accounts can be powerful estate planning tools — but only when used thoughtfully and in coordination with your overall plan. If your financial or family situation is more complex, it’s worth exploring other options to ensure your legacy is protected and your wishes are honored.

Need help reviewing your estate plan? Reach out to Lumsden McCormick for personalized guidance.