When you think about estate planning, wills and trusts often come to mind because they guide how property passes at death. What many people do not realize is that certain assets must go through probate, the court process that oversees distribution.
Some assets, however, can bypass probate entirely. Transfer-on-death (TOD) deeds and payable-on-death (POD) accounts provide a direct way to transfer property to beneficiaries. These tools may sound appealing, but you need to understand their risks and limitations.
How Payable-on-Death Accounts Work
Many banks and credit unions allow you to add a POD designation to accounts. This means that when you die, the account passes directly to the named beneficiary without going through probate.
During your lifetime, you retain full control. You can add or withdraw funds, close the account, or change the designation at any time.
For beneficiaries, POD accounts are straightforward. The bank requires proof of death and identification, then releases the funds. This quick process provides immediate access to money at a time when heirs may need it most.
How Transfer-on-Death Deeds Work
A TOD deed allows you to name a beneficiary for your real estate. You record the deed with the county during your lifetime, but ownership does not transfer until your death. Along the way, you can revoke or change the designation at any time, as long as you remain competent.
When you pass away, the beneficiary records a death certificate, and the title transfers without probate. Some states, like Oklahoma, require the beneficiary to file additional documentation before title vests in the beneficiary. TOD deeds are available in Oklahoma, where we practice, and they can be a simple way to transfer property like a home, ranch, or farmland.
Advantages of Using These Tools
Both TOD deeds and POD accounts avoid probate, saving time, money, and frustration. They also provide privacy, since probate records are public while direct transfers are not.
Another advantage is flexibility. You can change designations without rewriting your will or trust. This makes them useful for adapting to life changes, such as marriage, divorce, or the birth of a child.
They also provide liquidity. Beneficiaries gain quick access to funds in POD accounts, which can cover immediate expenses like funeral costs or household bills.
Risks and Limitations
Despite their benefits, TOD deeds and POD accounts have limits. They only cover the specific asset named. If you rely on them alone, other assets may still need probate. This can create an inconsistent plan.
Another risk is outdated designations. If you forget to update a beneficiary after a divorce or the death of someone named, the wrong person may inherit. Because designations override wills, your estate plan must stay coordinated.
TOD deeds can also create conflicts when multiple beneficiaries inherit as co-owners. They may disagree about selling, maintaining, or living in the property. Creditors of one beneficiary could also place claims on their share.
No Built-In Protections
Unlike trusts, POD accounts and TOD deeds provide no protection from creditors or poor financial management. Once the beneficiary receives the asset, they have full control. If they face bankruptcy, lawsuits, or divorce, the inherited asset could be lost.
You also have to address the question of what happens to a beneficiary’s share if they predecease you. Does that share transfer to the deceased parties children? Or, does it pass to the surviving named beneficiaries? What happens if a beneficiary is a minor and cannot inherit? Many questions should be considered? Easy, cheap, and simple is not always best. And it can be expensive.
Trusts, by contrast, allow you to set conditions, protect assets, and stagger distributions. That level of control is not possible with POD and TOD tools.
Living Trust: The Best of Both Worlds
A revocable living trust offers a broader, more reliable approach to probate avoidance. Instead of covering only individual assets, it gathers your property under one coordinated plan.
Real estate, bank accounts, investments, and even business interests can be placed in the trust. This eliminates the patchwork that POD and TOD designations create.
As the grantor, you keep control of the trust during your lifetime. You can add or remove property, change beneficiaries, and update terms as circumstances change. After your death, the successor trustee steps in to carry out your instructions without court involvement.
A trust also allows you to provide clear guidance on how and when beneficiaries receive property. You can delay distributions until a certain age, stagger inheritances over time, or hold funds in trust for education.
These features protect heirs from financial missteps and shield assets from creditors.
Access Our Free Worksheet!
We have created a worksheet that you can go through to gain a better understanding of this important process. It is offered free of charge, and you can get your copy here: Oklahoma City estate planning worksheet.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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