Payable on Death or Transferable on Death – Global Views
Death is always a profoundly emotional occurrence and the time following it can be complicated and involve many laws and regulations. A person lives and works through their entire lives and will build up possessions and valuables, and they could potentially also have agreements and contracts with certain entities. The most likely one of these would be a bank, where they would hold an account. Upon their death though, possessions and arrangements will no longer be of use to them. The question arises then regarding what is required with these possessions and more specifically to this article, accounts. In the end, they were still the belonging of the individual, and no one has a right to them except those who they have been assigned to through wills (or in the case of absence of a will, there will be other means to split an estate) or perhaps their creditors to some extent.
The concepts of Payable on Death and Transferable on Death is found primarily in the US though there may be some developed nations of the world with similar ideas. They relate to the bank accounts of individuals and what is to happen with them in the case of their death. Both of these concepts have similarities to one another, though at the same time there are differences.
Within this article, the regulations utilized in the different countries around the world on both of these topics shall receive consideration, and the similarities and differences internationally will also be looked into in detail.
Payable on Death (POD)
The concept of Payable on Death is first up. One can opt to make their bank account a POD account. The process is often free of charge, and once finalized, a beneficiary will exist, chosen by the account holder. Upon the death of the account owner, it will pass over in its totality to that individual; this includes all savings and checking accounts, savings bonds, security deposits, and other forms of deposit certificates.
One of the primary reasons the POD route is becoming so popular is so that people can avoid the entire ordeal of having to deal with the probate court, which would apply to an ordinary will; this would take further time and add unwanted complexity to the situation.
PODs are often referred to as a ‘poor man's will’, firstly, due to being able to avoid probate court and any costs that may arise through there, and also it will allow for the bypassing of hiring expensive lawyers to write up a large living or testamentary trust. Now it must be kept in mind that a POD will only cover the bank account of the individual and trusts are still a necessity for the remainder of one's valuables.
There are certain advantages to a POD bank account, and they are as follows:
- The whole process is relatively quick and easy to set up, and there are also generally no fees involved, which many find considerably attractive a prospect;
- Multiple beneficiaries are often possible, and the way this is dealt with is straightforward. The value of the bank account merely is equally split between all the recipients;
- Following the account owners death, it is simple to claim the money. The documents required to do so are a valid ID as well as the death certificate;
- There are very few if any limitations in place regarding the maximum of a POD.
There are, however, a couple of disadvantages, which are as follows:
- There is no way to select an alternate beneficiary, which would cause something of an issue in the event of the death of original beneficiary
That is the primary con of PODs. However, there is also one point which can cause further complications, though it is not necessarily a disadvantage; this would be the whole concept behind a POD. During the life of the owner, they will be able to make use of their assets within the account to whatever they wish. If they wanted to, they could clean out the bank account before their death and leave nothing to their beneficiary.
On top of this, the beneficiary is changeable at any point by the account owner. This point along with the previous may not seem like a disadvantage, though they may lead to personal issues arising.
Beneficiaries do not necessarily have to be natural persons. They could also be organizations, as was demonstrated in a case that arose against the charitable organization, the Salvation Army. A POD mentioned them as a beneficiary, and a case was brought up against them, stating that they weren't liable to receive from a POD due to not being a natural person. However, the court ended up dismissing the case as requested by the organization. With the country utilizing a common law system, this case will be significant due to the concept of judicial precedence.
Transferable on Death (TOD)
Transferable on Death is a concept that is quite similar to a POD. The primary difference is the type of account that is in use. For a POD, it would be a standard bank account, while in the case of TODs, it would be a brokerage account.
Once the individual passes away, a new account may be formed for them (this is generally the case) and the assets transferred over.
Beyond this though, the account owner will be able to form a TOD, and they will be able to split the assets by percentage between the beneficiaries they state. The advantages are for the most part are identical as are the disadvantages.
The USA allows for both POD as well as TOD plans. However, TODs are the more regulated of matters. The reason for this is because they are more complicated, though the outcomes and processes to go through are generally the same.
The regulation that governs TOD is the Uniform TOD Security Registration Act (1989/1998). One important thing to be ensured just the vast scale of the USA. The country covers a considerable land area, and the population is the third highest in the world. As such, the states have a large amount of their independence to decide on regulations within their state boundaries. However, this act has been enacted or introduced by every state.
As mentioned before, there may be complications that arise in these types of cases. There is money involved, and lousy intention may follow. A case in the US which demonstrated the burden of proof that should be required for a POD to be valid was one an appeal court was looking at relating to the Estate of Weiland, 2003 Ill. App. Lexis 529. Within this case, complications arose with the bank accounts held by Weiland within a bank. Weiland was in no state of mind to set things straight to advanced age and mental condition. In the end, though, it was found by the court that the Burden of proof would have been a written and signed document from the account holder at any point stating their wish to form a POD and the details that would accompany that. Should such a record not be available, it would require demonstration of the account holder intent to establish a Totten Trust with convincing evidence to back this up.
Within the UK, the concept of POD and TOD is one which does not occur. Generally, trusts are a far more common practice. Inheritance tax is also a significant part of the UK system, while there are only around six states in America which do so. There is a Federal Tax, though this is only applicable on estates valued close to $5.5 million, and so many cases do not fall under this
The amount of tax placed on one's inheritance in the UK depends on the total value of the estate in question. There is a certain amount of which is tax-free (£325,000 or £450,000 in the case of spouse, children or grandchildren) though anything above this heavily taxed at a 40% rate. Note that the tax is only applicable to any value over the aforementioned tax-free values. There will always be a tax fee quantity. Due to this taxing process on all of an individual’s estate, there is no regulation for the concept of a POD or TOD.
The UAE, unlike the UK, is known for its low tax nature. However, with the country consisting mainly (90%) of expats, complications can potentially arise with matters of inheritance, especially in the case that the beneficiaries are out of the country. Generally speaking though, the UAE has one of two stances which it can take with regards to inheritance law:
- In the case of Muslim nationals, Sharia law will be what is used to dictate the inheritance splitting. Muslin residents may also be able to choose this path.
- Non-Muslim residents, on the other hand, may opt to use the inheritance laws of their own countries.
An essential difference between the UAE laws and the laws around much of the rest of the world is that there is no concept of the right of survivorship, this being the concept of heirs inheriting in the case of no will being present.
This result is not so much an issue for Muslims as the Sharia law of inheritance will be applied, and the assets split through this means. However, if a non-Muslim fails to leave a will, the Sharia principles will be implemented, and there are set values for what all parties will receive. Therefore, the presence of a will is imperative to ensure their desired outcome.
Beyond this, it is also of vital importance that there are some means of proving one's rights as a beneficiary. The UAE courts will not accept word of mouth, and a certificate of entitlement will be required.
The concept of PODs and TODs primarily arises from the US. They have regulations in place that all states have enacted and approved of across the entire country, and the system is one which is quite simple to understand. Complications may arise, though more often than not, those are due to human error and mistakes rather than a flaw in the system.
There are further countries around the world where similar concepts are available, though these are often not regulated through legislation, and are more of an agreement between the bank and their clients. The UK would likely not approve of PODs and TODs as they could be used to bypass large amounts of taxation, though, in the case of the UAE, it may be possible depending on the bank. Also, if a foreigner somehow attempts to use the US Uniform TOD Security Registration Act (1989/1998), they may be able to form a Payable on Death or Transferable on Death agreement of some kind.
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