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What You Need to Know About POD and ITF Accounts

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What You Need to Know About POD and ITF Accounts

When it comes to financial matters, there’s a never-ending alphabet soup, FDIC, SEC, APR, and so on. Add two more important ones to your list -- POD (payable on death) and ITF (in trust for).

Unfamiliar? In a nutshell, POD is when one person puts money into an account, with the intention of helping another. While the person who deposited the money is alive, the money is his. When he dies, the money goes to whoever is named on the account, explains estate attorney Everett Sussman of the Law Offices of E.G. Sussman. With an ITF, one person puts money in an account, in trust for someone else. “The intended beneficiary has immediate equity in the account, and the creation of the account constitutes a completed gift. When the person who created the account dies, the beneficiary receives the funds,” he says.

Pat Simasko, principal of Simasko Law, says there is no legal distinction between ITF/POD accounts. “In reality, POD (Payable on Death), ITF (In Trust For) and Totten Trust all mean the same thing. They are informal plans to pass accounts to the next generation without probate. When a loved one dies, those listed on the POD/ITF accounts get the money without going through probate.”

Okay, so how do you decide which account is best for you? The difference is based on equity. The creator of the account retains ownership and control of the asset with a POD (so is subject to creditor claims against him). In an ITF, the beneficiary immediately takes an equity (but not possessory) interest, protecting the asset from the creator's creditors (with certain exceptions).

“What is best for you depends on your personal situation, which is an excellent subject for discussion with your estate planning attorney,” says Sussman.

What you need to know

With Sussman’s 25 years of experience, he has some concerns, “It has been my experience that both ITF and POD accounts have their uses, but too many unwary people fall into a trap - for example: Mom dies, leaving a will that distributes her probate estate evenly to her three children, in accord with her wishes. Unfortunately, the attorney who wrote the will failed to discover a POD account - which does not go through probate, and therefore is not controlled by the will - containing a large sum of money, naming only one child. In this situation, one child receives substantially more from the estate than does his siblings.”

But such chaos can be prevented. “Provide full information about assets, investments, and creditors to your estate planning attorney. This helps him create a comprehensive plan that best accomplishes the goals of the client(s) and bring experts (CPA, e.g.) if necessary to understand the ramifications of certain transfers,” says Sussman.

Marcia Noyles, a director of communications for an IT health firm, says, “I'm not an estate attorney or a banking pro, but wanted to pass on a little tidbit. Both my dad and husband have died within the past three years, so I'm hyper aware of opening bank accounts and putting POD information on each one. I've found that not all of the low-cost online banking accounts offer POD as part of that account. In fact, very few do. You have to dig for the information and be very specific about what you want when you open an account. I've turned down accounts, because they didn't have those attached to them.”

Doug Martinson, an estate planning attorney with Martinson and Beason believes that while FBO and POD accounts can be helpful estate planning tools, they should be used with the advice and guidance of an experienced estate planning attorney. “Problems may arise when named beneficiaries are minors or die before the owner of the account,” he says.

with ITF/POD, the beneficiaries listed on these accounts have no access to the funds until after the account holder passes away

Also, people must understand the difference between joint ownership and POD/ITF. Simasko points out that with ITF/POD, the beneficiaries listed on these accounts have no access to the funds until after the account holder passes away. This means the accounts are protected if the beneficiaries ever get sued or go through bankruptcy. When the account holder passes away, the beneficiaries get the money and it’s no longer protected. The issues with ITF/POD is that the beneficiaries can’t pay the account holder’s bills (if needed) because they aren’t listed as a joint owner. It that case, the account holder should have a power of attorney on file.

Furthermore, a concern with POD, ITF and joint accounts, is that they supersede the account holder’s will. Says Simasko, “If the account holder says everything they own goes to their five kids equally, but they name their oldest son on the account as POD/ITF/joint owner, the oldest son gets all the money. He doesn’t have to share it with his siblings. That’s where the war starts and breaks up a family.”

There are some important questions to think about when setting up one of these accounts. “Who do you want to get your stuff, are the beneficiaries listed on your accounts trustworthy, are the beneficiaries listed on your accounts mature enough to handle your funds, are the beneficiaries listed on your accounts receiving governmental benefits?” says Simasko.

If you have trustworthy beneficiaries without any major issues in their lives, then using POD, ITF and joint accounts work well because they’re easy to set up and cost you nothing. However, you should still have a financial power of attorney on file so that someone can pay your bills (if needed), he adds.

Simasko says if you think your beneficiaries may have issues, then simple and cheap may not be enough. “A formal Revocable Trust should be set up so that you can pass your accounts to beneficiaries without probate and with added protections for issues that may arise for beneficiaries (divorce, creditors, etc.).”

Don’t go it alone. Says Simasko, “It’s important before you make any decision to sit down with an elder law attorney to discuss your options. A bank representative may ask you who you want listed on your accounts, but is unable to give you any legal advice.”

Editor's Note: For more information on the effect of POD/ITF designations on deposit insurance coverage, please refer to the article, Maximizing Your FDIC Coverage with Beneficiaries.

Comments
Not dead yet, but...
Not dead yet, but...   |     |   Comment #1
Is there an equivalent for property like houses?
Kennewickman
Kennewickman   |     |   Comment #3
In Washington State, you can have a transfer on death deed. House stays out of probate and house value not subject to grantor estate taxes. Not sure about other states.
ted
ted   |     |   Comment #4
in florida, and some other states I'm sure, you can do a lady bird deed or also called an enhanced life estate, very simple to do and it avoids probate.
Martin
Martin   |     |   Comment #5
The easiest way is to include a person(s) as joint tenancy in common in the title (proportional or equal or exclusion added at distribution time of death). It works for all states and no tax consequence at all.
Parris Boyd
Parris Boyd   |     |   Comment #28
Martin, in South Carolina, such deeds must now contain the phrase, "With Right of Survivorship". This requirement was added by self-serving attorneys in the legislature, and is one of many issues I've been blogging about. Search "End the Probate Racket"
Sperry8
Sperry8   |     |   Comment #2
One other thing to note is that if you split the POD to two or more then your FDIC insurance also is increased... it's $250,000 per named POD even if you have only one bank account and $500k in it. There is a cap on this (you can't just have 14 PODs for instance) but you can do this for at least two and I believe a few more.
DOA
DOA   |     |   Comment #6
Capital One Bank will allow you to assign a beneficiary to an account, but they will not title it POD. So just having the account with a designated beneficiary also bypass probate?
Bogie
Bogie   |     |   Comment #9
Yes. All the banks and CUs that I have ever dealt with handle CDs with designated PODs the same way.
stgold
stgold   |     |   Comment #7
If POD is not allowed on a Bank CD but a beneficiary name is ,,,Does this still bypass probate?
Donkey
Donkey   |     |   Comment #12
I believe that in order for a beneficiary to be assigned to an account, it needs to be designated via some legal process such as POD/ITF.
anymous
anymous   |     |   Comment #8
For an NCUA credit union I want to get more CD's over 250,000. If I make a relative a beneficiary does that get the insurance total to $500,000?
hank
hank   |     |   Comment #10
Each beneficiary adds 250000coverage up to 5 pod. Need two beneficiary for 500k
DOA
DOA   |     |   Comment #11
Just remember that increased insurance coverage will be honored by the FDIC only if the beneficiary is titled with a trust relationship. Having the account with just a beneficiary with no trust relationship entitlement will not qualify for higher insurance coverage.
Anonymous
Anonymous   |     |   Comment #14
What about mica?
Anonymous
Anonymous   |     |   Comment #21
Sorry, what about credit unions with ncua insurance?
Sperry8
Sperry8   |     |   Comment #22
DOA - I don't believe that is the case for FDIC banks. On their website it shows each POD beneficiary as being covered for 250k up to 5 POD and doesn't mention any other rules. Why do you believe it is different? Or are you just referencing NCUA insurance?
DOA
DOA   |     |   Comment #23
I got the below information from an email directly from a FDIC representative:

"First, the account title at the bank must indicate that the account is held pursuant to a trust relationship. This rule can be met by using the terms payable on death (or POD), in trust for (or ITF), as trustee for (or ATF), living trust, family trust, or any similar language, including simply having the word "trust" in the account title. The account title includes information contained in the bank's electronic deposit account records."
Donkey
Donkey   |     |   Comment #13
"... not all of the low-cost online banking accounts offer POD as part of that account. In fact, very few do..." I woud disagree with this statement that very few low cost online banks offer POD/ITF designation. Most of them actually do, in my experience. The only one I've found recently is Capital One CD's, but Ally, Synchrony, Barclays, American Express etc all offer POD/ITF.
DOA
DOA   |     |   Comment #15
I agree, in general most banks and credit unions offer the POD designation. What do you suppose is the reason Capital One Bank doesn't?
DCGuy
DCGuy   |     |   Comment #16
Capital One appears to be nitpicking on deceased account holders and "forcing" the survivors to go through the local county inheritance offices to file documentation to show that you are "allowed" to take over any accounts with the deceased owner's name. Joint account ownership is probably the better option (unless both account owners die simultaneously).

https://home.capitalone360.com/settlement/singleaccounts
https://www.bogleheads.org/forum/viewtopic.php?t=187719
Bogie
Bogie   |     |   Comment #17
Not nitpicking at all.

If Capital One doesn't allow POD designations, naturally inheritance would have to be proven with the proper legal documentation. That protects the financial institution and the person(s) that are legally entitled to the inheritance.
DOA
DOA   |     |   Comment #24
Capital One 360 does not allow designating beneficiaries, but Capital One Bank does allow designating a beneficiary, but not titled as POD. As of yet, I have not been able to find information on what Capital One Bank avoids by doing it this way?
john
john   |     |   Comment #27
its simple stay away from capitol one, lousy bank their credit card application requires 3 credit appl and thus 3 hits to your credit score
THE TRUTH HAWK
THE TRUTH HAWK   |     |   Comment #18
I JUST REALLY LOVE ALL THE ON LINE (ONLY) BANKS AND CU'S THAT CAUSE AGONIZING, HANDWRINGING AND GASTRIC REFLUX WHEN IT COMES TO THE DEATH OF THE OWNER and PROBATE,,,,,IMAGINE WHAT FUN IT WILL BE FOR THE EXECUTOR AND HEIRS TO FIGURE OUT ALL THE LAWYERLY FINE PRINT THAT VARIES FROM ENTITY TO ENTITY WHEN YOU ARE DEALING WITH ON LINE ONLY BANKS AND CU'S,,,,,,it gives you reason to believe in old fashioned paper trail with your local brick and mortar branches and personal bank reps... IF YOU ARE AN OLD DINOSAUR WAITING FOR THE COACH BODHAR,,,,,IT'S JUST WHAT EXECUTORS AND MOURNFUL HEIRS NEED,,,,FIGURING OUT THE BLOODY DETAILS WHEN A LOVED ONE DIES......but we are in the info on line ain't the net so convenient era of consumer finance,,,,,and ALL THE KVETCHING FOR A FEW BIPS MORE......makes me laugh.
The Liar Hawk
The Liar Hawk   |     |   Comment #19
People that write in ALL CAPS make me laugh.
borschtbeltcomic
borschtbeltcomic   |     |   Comment #20
brilliant rejoinder
Smokeboat
Smokeboat   |     |   Comment #25
Fly me to the moon, let me see the stars.
#26 - This comment has been removed for violating our comment policy.
Just Curious
Just Curious   |     |   Comment #29
Would like to know what the certain exceptions are in the ITF accounts.
Dubg58
Dubg58   |     |   Comment #30
My boyfriend and his step-son are on a savings acct. together...My boyfriend wants the money to go to his step son should something ever happen and vice verser ...When they opened the savings I don't remember the bank asking anything about POD etc,,,I just remember my boyfriend saying if his step son needsmoney he can withdraw it without my boyfriend being there...So if something happened to my boyfriend, will his step son be able to get the money that's in the savings w/o probate...This is in R.I