Before deciding whether to set up a POD or TOD account, it is important to know the difference between them, understand their pros and cons, and talk to an attorney about how they fit into your estate planning goals.

POD versus TOD (versus a Trust)

A way to avoid probate is to use POD and TOD accounts for asset transfers. The major difference between POD and TOD accounts is the type of assets held in the account.

• POD is a designation added to a bank account, such as a checking account, savings account, certificate of deposit (CD), and money market account.
• TOD applies to an investment account, such as an individual retirement account, 401(k), brokerage account, and other accounts holding securities.

An additional difference between POD and TOD accounts is that, with a POD designation, the account assets are transferred to a beneficiary (or beneficiaries), while with a TOD designation, account ownership transfers to a beneficiary.

PODs and TODs are able to be revoked during the owner’s lifetime. With both, while the owner is alive, they retain account ownership and can manage the account as they see fit. Assets transferred in this way have no protection from a beneficiary’s creditors.

Pros and Cons of PODs and TODs

Other benefits may include the following:

• Setup is straightforward and there is generally no cost.
• Designated beneficiaries receive the funds without having to wait for probate to conclude, which can take months.
• The account owner has the flexibility to change, add, or revoke a beneficiary designation.
• Trusts can also be named POD beneficiaries.

The probate avoidance offered by a POD or TOD account is its main appeal, but this and other benefits should be weighed against the following potential pitfalls:

• A POD or TOD account is not effective if the owner becomes incapacitated.
• Backup beneficiaries cannot be named, so if a beneficiary predeceases the account owner, their share of the account could be automatically reallocated to the remaining surviving beneficiaries or subject to probate.
• If a will is updated but POD or TOD beneficiaries are not, there could be inconsistencies in the overall estate plan.

Is a POD or TOD Account Right for My Estate Plan?

An estate plan is a highly individual matter that reflects your personal wishes and family dynamics. As such, there is no “one size fits all” advice for an estate plan. The pros and cons of any estate planning vehicle—be it a POD, TOD, revocable trust, will, or power of attorney—must be weighed against your values and goals.

During a meeting with our estate planning attorneys, we can discuss POD and TOD accounts and how they may align with your overarching estate planning objectives. Call or contact us to start planning today.

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Title Is Key

When it comes to real property such as a house, the person who has title to (or legal ownership of) the property controls the property. The title holder (owner) can lease, mortgage, refinance, sell, gift, or do anything else with the property. When you purchased your home, you received title to it through a deed. This deed proves you are the owner and that you have all rights to your property.

A Will Is Effective Only upon Your Death

A will is a legal document that specifies what happens to your property upon your death. The key phrase here is “upon your death.” A will does not change title (ownership) to property during your life, so naming your child in your will as the recipient of your home means that they have no ownership rights to your home until after your death. Also, you can rewrite or change a will at any time during your life while you are still mentally able to do so. For these reasons, your child cannot take your home while you are still alive.

A Word of Caution

Using a will to give your house to your child at your death guarantees that they will have to go through the probate process to complete the title transfer. In an effort to avoid probate, some people will put their child’s name on the deed to their home while they are living, with the intent of continuing to own the home while they are alive and passing the home to their child at the time of their death. As discussed above, title to property is received through a deed. If you put your child’s name on the deed to your home, they immediately become a co-owner. As a co-owner, they can do what any owner of property has the right to do: lease, mortgage, refinance, etc. So, while naming your child in your will as the recipient of your home at your death does not give them the ability to take your home while you are still alive, putting your child’s name on the deed to your home would indeed give them–and their creditors–that ability.

If you want to ensure that you maintain control of your home while you are alive, that your child receives your home upon your death, and that they can avoid the probate process, there are estate planning tools such as a transfer-on-death deed or a revocable living trust that can accomplish all of these goals. We are happy to meet with you to discuss your unique goals and how a tailored estate plan can help you meet them.

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Family dynamics can change drastically when one member passes away. Particularly if a surviving spouse remarries! The question of what happens to the family home can make the unique relationship between the children and the new spouse even more complicated. If done correctly, setting up a Right of Occupancy trust can help you avoid these complications. Right of Occupancy might be a good decision for your family even if you’ve not remarried but you have a specific beneficiary that you would like to continue living in your home.

What is a Right of Occupancy?

A Right of Occupancy allows the client to designate a beneficiary to live at a property, even after they pass. It can also provide for the expenses to maintain the property. When setting up a Right of Occupancy, you can choose how long the arrangement will last. This can be a designated period or until the beneficiary passes away or leaves the property.

Right of Occupancy v. Life Estate

The most major difference between a Right of Occupancy and a life estate is that the beneficiary of a life estate can sell or transfer their interest in the Property. With a Right of Occupancy, the ownership interest remains within the trust. The beneficiary has the right to stay in the home for a predetermined amount of time or until they move or pass away. As with anything, there are drawbacks to a Right of Occupancy. Owning real estate comes with certain tax benefits and some states have homestead provisions that limit how much a home’s property tax can increase each year. Those benefits may not be available when the property is held in a Right of Occupancy trust.

Things to Consider

When considering if a Right of Occupancy provision is right for you, remember that the beneficiary typically must occupy the home or property to retain the right. The beneficiary also does not have an ownership interest that can be sold or transferred to another individual. You will also have to decide whether the trustee or beneficiary will pay the utilities. The client can also select who is responsible for paying the mortgage (if there is still one on the home or property), property tax, home insurance, and the maintenance of caring for the house/property costs. When the client passes away it may create a different dynamic in the family. By stating the client’s wishes for the property, it can reduce conflict among the trustee, beneficiary, and the property’s ultimate heirs (remainder beneficiaries) if the client plans to offer a Right of Occupancy. Unfortunately, this may not eliminate all conflict; for example, other beneficiaries may be frustrated by the Right of Occupancy provision because they believe that they could sell the home for a larger inheritance instead of allowing the occupant to continue living there. Similarly, heirs might feel disappointed or angry that one beneficiary is allowed to remain in the home while the others do not have the option to live there after your passing.

If you are still interested in the idea of a Right of Occupancy, please give our office a call to discuss updating your trust or creating an estate plan to reflect this wish. You may schedule a consultation by emailing Courtney@LawDublin.com or calling the office at 614-582-2875!

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Although it is true that ordinary real estate transactions do not require an attorney’s help, an attorney can help decrease your chances of being sued by an opposing party in the future. An example would be failure to disclose specific information.  Even if you have a real estate agent, the agent is not qualified to make judgments on legal issues regarding language in the purchase contract or your mortgage.

What Can a Lawyer Provide to You that a Real Estate Agent Cannot

An attorney who specializes in real estate law can review your purchase offer. Unlike a real estate agent, an attorney will be able to look over the complex contract and make sure it covers all necessary information to protect you. For example, an attorney can help implement clauses in the contract regarding home inspections. Another example is if you submit an offer and the seller counters the offer, the seller will revise the contact. Hiring an attorney to review these revisions will be beneficial. A lawyer will make sure the contract is complete, thorough, and executed properly.

Finally, as the process comes to an end, you will receive a deed to your new home proving your legal ownership. An attorney will help you figure out how to title your property. For example, if you are married, you may want to title your property as joint tenants with the right of survivorship. On the other hand, if you are buying a home with someone else, you may want to title the property in joint ownership as tenancy in common.

If you have questions regarding your purchase contract, how to title your property, or just want to make sure you are fully protected when buying or selling your home, call The Law Office of Charles H. McClenaghan at (614) 429-1053 to schedule an appointment!

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