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Columns: Tax Talk
George Saenz, CPA   Expert: George Saenz, CPA
Tax Talk
Pay-on-death accounts may obviate need for wills
Tax Talk

Pay-on-death designation avoids probate
 

Dear Tax Talk,
My wife and I have added our daughter to our stock and bank accounts as TOD (Transfer on Death) or POD (Paid on Death). What are the tax consequences on this arrangement?
-- E.D.

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Dear E.D.,
Basically, the designation of an account as "pay on death" to someone is a tool used to avoid probate. It avoids the need to do a will and it is simple and clear because it can be done when the account is opened or at any time, for that matter. Retirement plans and life insurance policies are typical assets that are conveyed using the pay-on-death designation.

POD differs from putting an account in joint names with your child. Some people prefer to add their children or someone else to the account so the children or other designee will have access to the funds should they become incapacitated. Adding a child to an account does not necessarily mean you're making a gift out of that account unless that is your intention. Designating to whom the account should be paid on your death also does not create a gift because a transfer will not occur until your death. The income on the account continues to be taxable to you.

You may want to consider designating some accounts with your daughter as joint, should she need to access those funds during your lifetime.

Bankrate.com's corrections policy -- Posted: May 31, 2007
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