Missouri law allows you to put POD (payable on death) and TOD (transfer on death) designations on most assets. A POD/TOD designation is something you set up on each asset or account through the financial institution where it’s held (e.g., it’s set up with the bank or brokerage house, etc.) It allows you to designate who will receive that asset upon your passing. That asset will then avoid Probate Court and automatically go to the designation person upon your death.
Our office is often asked by our clients if they need a Trust or whether they can get by with just putting POD designations on their assets. While PODs may sometimes suffice for simple estates and distributions, a Trust is highly preferred as POD designatins have some serious disadvantages and limitations when compared to using a Trust:
- Children under 18 should not be named as a POD beneficiary - - that asset will end up going through a complicated Probate process called a Conservatorship. In a Trust, you can always provide that your assets will be used for the care of children without actually putting it in their hands until a designated age.
- In a POD, payments to beneficiaries cannot be stretched out over time like a Trust (e.g., 1/3 at age 25, 1/3 at age 30, 1/3 at age 35, etc.)
- It is difficult in a POD to split up the account in varying percentages to multiple people. That can easily be accomplished through a Trust.
- Some financial institutions will not even allow you to name more than one beneficiary on your POD designation. With a Trust, you can name as many beneficiaries as you like.
- If the person you’ve named as a POD predeceases you, that account may end up going through Probate Court and/or going to individuals that you did not intend. A Trust will always provide for a backup distribution plan if a named beneficiary predeceases you.
- A Trust always provides for the management of your assets in the event you’re incapacitated and unable to handle your affairs while a POD does not.
- A Trust can be used to protect your assets in the event a beneficiary is suffering from addiction issues and usually allows the Trustee to temporarily hold back that money until those issues are overcome. A POD designation will automatically put that money in that person’s hands regardless of that addiction.
- A Trust can be used to provide for a beneficiary who may be going through a divorce, bankruptcy or lawsuit and to preserve and protect that money for them. A POD designation could put that money in their hands in the middle of that divorce, bankruptcy or lawsuit, thus putting that money in jeopardy of being seized by creditors or an ex-spouse.
- People often lose track of their POD designations as they have to be made at each institution where an asset is held. With a Trust, all assets are simply titled in the name of your Trust - - it’s much easier to keep track of.
A Trust has much greater flexibility and advantages over a simple POD designation. While a POD/TOD may work for very simple situations, a Trust is the clear winner to manage, protect and distribute your assets to your loved ones.