Why TOD/POD Designations Often Fail & Why People Use Trusts Instead

• TOD = Transfer of Death

• POD = Payable on Death

Last week, I posted on the use of trusts to avoid U.S. probate. I received the following question on Facebook from Na Hauser: Do you need to go to probate and a will if you sign a TOD with the investment company?

Great Question!

Here are some reasons why a Trust works better than a TOD:

1) TODs Do Not Handle Incapacity

A TOD only transfers property after death. If the owner becomes incapacitated, a TOD does nothing. The account may become frozen, and a court-appointed guardian might be required. A revocable trust allows a successor trustee to step in immediately without court intervention.

2) TODs Cause Problems If Beneficiaries Die Out of Order

If a beneficiary dies before the owner and the designation is not updated, the share may lapse. Many TOD forms do not handle per-stirpes distributions properly. (Note: Per Stirpes means that each family branch gets its share: if a child dies before you, that child’s share goes to their children, not to your other children. It keeps the inheritance within each branch of the family). Trusts handle these contingencies cleanly.

3) TODs Cannot Manage Minor Beneficiaries

A TOD to a minor is ineffective because banks will not release funds to a minor. This triggers guardianship proceedings and ongoing court supervision. A trust avoids these issues and allows structured distributions.

4) TODs Do Not Protect Beneficiaries

A TOD gives assets directly to a beneficiary with no protection from divorce, creditors, or mismanagement. Trusts can provide these protections.

5) TODs Create Problems With Real Property

TOD deeds can create issues with title insurance, refinancing, and disagreements among beneficiaries. Some states do not even permit TOD deeds for real property. Trusts avoid these complications.

6) TODs Cannot Coordinate Multiple Assets or Complex Wishes

TODs only control specific accounts or assets. They cannot coordinate entire estates, manage taxes, or implement long-term planning. A trust centralizes everything.

7) TODs Complicate Cross-Border or Non-U.S. Heirs

Heirs who are foreign residents or live in Israel may face additional documentation requirements or delays. A trust consolidates control with a U.S. trustee who can manage everything smoothly.

8) TODs Can Trigger Probate Anyway

Beneficiary deaths, missing paperwork, or institutional errors can invalidate TODs and force probate. Trusts avoid this fragility.

Bottom Line

Revocable trusts handle incapacity, avoid probate reliably, protect children, prevent disputes, and work across jurisdictions. TODs are suitable only for simple situations, while trusts offer a robust estate-planning solution.

Avrum Aaron

US-Israeli lawyer

avrum@lop-llc.com

054-398-4380