A few weeks ago I was at the DMV. I know, not exactly fun, right? Well, it turned out to be a great time, and also extremely frustrating. I witnessed person after person fail to take a simple step in their estate planning process.
When I arrived there were nine people ahead of me in the car registration line. All nine of these individuals were at the DMV to register a car. It was a bit shocking to me, but I was delighted that the individuals working would prompt people, “Would you like to add a TOD on the car title?” It seemed so progressive that they were starting the conversation, instead of the consumer having to.
By the fourth person, I was chanting in my head “do it, do it, do it!” None of them heard my silent cheers. Every single person out of the nine said no.
While I was being helped by someone, another person was helping a gentleman and he was wanting to make his spouse a joint owner on the title and also as the TOD. The person was being extremely patient and trying to explain that it wasn’t possible to make an owner of the car also the TOD.
What is a TOD and POD in Estate Planning?
TOD stands for Transfer on Death. POD stands for Payable on Death. These terms are used almost interchangeably. The slight difference is that a physical item (i.e. a car, stock, etc.) transfers from one person to another. While a POD is typically reserved for cash that is being passed on to someone else.
Some states allow you to place a TOD on the title of a home, while others do not. Head to this link if you’re curious about putting a TOD on your home.
Why is a TOD or POD Important in Estate Planning?
A TOD or POD is important because it allows an asset to pass to an heir at your passing without having to have the item go through probate. Probate is a legal procedure where the state determines who is the rightful heir to assets when you pass.
The more items you have a TOD or POD on, the more effective your estate can be at distributing assets to the individuals you want the assets to go to. This can save your estate time and money.
How is a TOD or POD Different from a Joint Owner?
Let’s use an investment account for this example. If a couple has an investment account and they are both named as joint owners of the account, they both have a right to at least some (likely half) of the value of the investment account. Additionally, both individuals can make decisions with respect to the account (when to buy or sell investments, transfer funds into or out of the account, etc).
However, in a TOD situation, the person named as the TOD doesn’t have the ability to make any decisions about the account until the owner’s death. If the situation is spouses, the second spouse (not named as an owner) may still have some right to some of the assets in the account if the relationship comes to an end (especially if the couple lives in a community property state).
So, this is why when the guy next to me wanted to make his spouse a joint owner and TOD, it didn’t make sense. He really needed to decide if he wanted her to be able to make decisions about the car while he was living or not, and choose either making her a joint owner or a TOD.
What is the Cost of a TOD or POD?
On most accounts (banking, investment, insurance) placing a TOD or POD (aka a beneficiary) on the account costs nothing. You designate this at the time the account is opened and you can change it at any time with no cost.
With an automobile in the State of Missouri (where I live) the cost of adding a TOD to a car is $8 as of June 2021. It will vary from state to state. But compared to your estate having to go through probate, it’s practically free to put a TOD on a vehicle.
This was why at the DMV, I wanted to chant “Do it. Do it. Do it” when people were prompted to put a TOD on their car title. For $8, they could be sure that no one would squabble over who got their vehicle if something happened to them. The more you can use TODs or PODs the more effective your estate planning will be for your heirs. It is one of the cheapest and most reliable ways to ensure that others know your wishes for your assets.
Other Estate Planning Resources By MPowerCo
Estate planning is a favorite topic over here at MPowerCo! Our biggest resource for you is our course Written Wishes, an all encompassing online course that will guide you through the estate planning process from beginning to end. Head over to the Written Wishes course page to get your wishes in place.
If you’re ready to read more now, here are two blog posts that will be of interest to you. First, we have this blog post about what to include in an estate planning binder. Second, head to this article about mindsets needed for effective estate planning.
Free Resource – Becoming a Millionaire Next Door
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