When it comes to avoiding probate, naming beneficiaries under payable-on-death (POD) or transferable-on-death (TOD) account may seem to be a simple solution to avoid the need to set up a living trust. Unfortunately, POD and TOD accounts can complicate your family’s life, and may create an otherwise avoidable family conflict.

When you pass away, you will likely leave financial obligations behind, including funeral expenses, a final income tax return, medical and hospital bills. If you own a home or condo, it probably won’t be sold immediately; so funds will be needed to maintain the property and get it ready for sale.

Your POD/TOD beneficiaries (typically your children) will be responsible for paying these bills. And here’s the catch: Suppose one of your beneficiaries doesn’t want to pitch in toward the final expenses? I’ve seen situations in which one child (or that child’s spouse) thinks they have done more for the deceased parent than the other children have and does not think they should have to share in paying the final expenses. In other cases, a beneficiary may have financial difficulties and spend the money as soon as it is received. In both cases, the other beneficiaries get stuck paying the bills — and almost always resenting the sibling they believe has not honored his rightful obligation.

This is why creating a revocable living trust and funding it with your accounts is a better solution. Your trustee will have the authority to draw on the funds to pay your final expenses, and once that is done, the trustee will distribute the remaining funds to your beneficiaries. While not as simple as setting up a POD or TOD account, it is a far better approach in terms of promoting family harmony after you’re gone.

Paul Kellogg is an attorney in Cincinnati with the Phillips Law Firm, Inc. Paul’s practice focuses on providing comprehensive estate planning and probate services to families and business owners, as well as serving as outside general counsel to entrepreneurs and businesses where he provides guidance and advice on a wide variety of transactions and disputes.  He can be reached at (513) 985-2500 or via email at [email protected].   Please explore Paul’s other articles on estate planning and business on the Phillips Law Firm Blog page

 The article is for educational and informational purposes only and does not constitute legal advice. Anyone contemplating taking legal action is urged to obtain proper legal advice from an attorney licensed in your particular jurisdiction