MSU Extension: Want to Avoid the Cost of Probate? Use PODs and TODs

This is one in a series of articles on estate and legacy planning. Authors are Kaleena Miller, Madison-Jefferson County Extension Agent, kaleena.miller1@montana.edu and Marsha Goetting, MSU Extension Family Economics Specialist, marsha.goetting@montana.edu.

The Montana legislature has provided tools to allow Montanans to have their financial assets passed to the people they choose instead of letting the state decide. According to Montana State University Extension educators, an added benefit is that probate is avoided.

Marsha Goetting, MSU Extension family economics specialist, said financial assets can be passed to beneficiaries through contractual arrangements. By listing beneficiaries for financial accounts, owners can pass more on to their heirs because the cost of probate is avoided.

One way is a payable-on-death designation (POD). Individuals can name whomever they want as a POD beneficiary of their checking and savings accounts, certificates of deposit, and U.S. savings bonds. A POD allows people to control money in their accounts during their lifetime. The beneficiary cannot access the funds in the accounts until after the owner's death, after which the balance is passed to them. “There is no probate necessary for financial accounts passing directly to beneficiaries,” said Kaleena Miller, Madison-Jefferson County Extension Agent; you can list your POD beneficiaries on forms provided by the financial institutions.

“Consider naming a secondary beneficiary should your primary one die with you or before you,” Miller added. “Be sure to review the beneficiaries on your accounts and update when circumstances change, such as births, deaths, and marriages.”

Another way to avoid probate is a transfer-on-death registration or a TOD. The Montana Uniform Transfers on Death Security Registration Act allows an owner of securities to register a beneficiary to receive the title after death. A TOD is like a POD but is used for stocks, bonds, and mutual funds. A TOD registration stays with the issuer, transfer agent, or broker.

A TOD beneficiary has no ownership rights in your securities while you are alive. Upon your death, the securities will be transferred directly to the beneficiaries. Beneficiaries who inherit stocks, bonds, or mutual funds can decide whether to keep or sell the investments. TOD forms usually appear on the websites of companies where you hold your accounts. You can change TOD beneficiaries by filling out a new form like a POD.

Montana law allows for naming family, friends, local community foundations, or other charitable organizations as beneficiaries on other financial accounts as well, such as life insurance and annuity policies, 401(k), 403(b), and 457 accounts, individual retirement accounts, and employee benefit plans. Downloadable beneficiary designation forms are often on the company's website or through a company representative.

“Consider beforehand whom you want to receive assets at your death. Then complete the proper legal documents to ensure your wishes are honored,” Goetting said. “Make a list of assets on which you wish to place a POD, TOD, or beneficiary designation,” Goetting added. Individuals should either visit their financial institutions and list their beneficiaries or have the institution mail the forms by returning the forms to the financial institutions to avoid probate fees upon death.

A paper copy of the Non-Probate Transfers MontGuide is here: https://www.montana.edu/estateplanning/eppublications.html. Scroll down to 33. For those who do not have computer access, copies of all MontGuides mentioned in this article are available from the Madison-Jefferson County Extension office at 287-3282.