Quick Answer
POD applies to bank accounts and TOD applies to brokerage accounts; both transfer assets directly to named beneficiaries at death, bypassing probate, while the owner keeps full control and can change beneficiaries anytime while alive. Both override the will, but neither reduces the owner's taxable estate.
Now that you understand how property ownership affects transfer at death, let's look at two simple tools that let account holders bypass probate without creating a trust.
POD - Pay on Death
- Designation placed on bank accounts (checking, savings, CDs, money market accounts)
- At the account holder's death, assets transfer directly to named beneficiaries, bypassing probate
- The account holder retains full control during their lifetime; they can spend, withdraw, or close the account at any time
- Beneficiaries have no rights to the account while the owner is alive
- Simple, free to set up at most banks
TOD - Transfer on Death
- Designation placed on brokerage accounts and securities (stocks, bonds, mutual funds)
- Works the same way as POD: assets transfer directly to named beneficiaries at death, bypassing probate
- The account holder retains full ownership and control during their lifetime
- Can change beneficiaries at any time without the beneficiary's consent or knowledge
Key Features of Both POD and TOD
- Low-cost alternative to trusts for avoiding probate on specific accounts
- Owner can change beneficiaries at any time during their lifetime
- Beneficiary designation overrides the will. If the will says one thing and the POD/TOD designation says another, the designation controls
- Assets are still included in the owner's taxable estate (they just skip the probate process)
- Do not provide the broader protections of a trust (no incapacity planning, no conditions on distribution)
| Feature | POD | TOD |
|---|---|---|
| Account type | Bank accounts | Brokerage/investment accounts |
| Bypasses probate? | Yes | Yes |
| Owner retains control? | Yes | Yes |
| Overrides will? | Yes | Yes |
| Reduces estate taxes? | No | No |
Exam Tip: Gotchas
- POD and TOD bypass probate but do NOT reduce estate taxes. The assets are still included in the decedent's taxable estate. "Avoids probate" and "avoids estate tax" are two different things.
- POD = bank accounts, TOD = brokerage accounts. These are often confused on the exam.
- Beneficiary designations override the will. If the will says one thing and the POD/TOD designation says another, the designation controls.
- The beneficiary has no rights to the account while the owner is alive.
What Should You Check on Exam Day?
- POD is for bank accounts; TOD is for brokerage and securities accounts, these are frequently swapped on the exam
- Both bypass probate but do NOT reduce estate taxes; the assets remain in the owner's taxable estate
- The designation overrides the will if the two conflict
- The owner retains full control during their lifetime and can change beneficiaries at any time without the beneficiary's knowledge or consent
- Neither provides incapacity planning or conditional distribution the way a trust can