Transfer On Death Accounts And Deeds vs. Living Trust

Dickinson Wright

A question I am often asked is, “If I have designated my various financial accounts as transfer on death (TOD), or payable on death (POD), and I have a transfer on death deed on my house, why do I need a Living Trust?”  While it is true that one of the primary benefits of a Living Trust is to transfer accounts on death, or real property, without probate, there are other reasons for having a Living Trust.  One of the often overlooked benefits of a Living Trust is the protection it provides in the event of the incapacity of the creator of the Trust.  In the event the creator of the Trust becomes physically or mentally incapacitated, a Successor Trustee can step in and manage the assets of the Trust for the benefit of the creator of the Trust.  As a result, there is no need to establish a Guardianship or Conservatorship over the creator of the Trust to manage the assets held by the Living Trust.
Assets that pass pursuant to transfer on death designation, will pass outright to the beneficiary.  If the beneficiary were in the middle of a lawsuit, divorce, or bankruptcy, the assets passing outright to the beneficiary would be at risk to the prospective judgment creditor, ex-spouse or bankruptcy claims.  Whereas with a Living Trust, the Trust could provide that at the death of the Trust creator, the assets would remain in Trust for the health, education, support and maintenance of the beneficiary.  This type of trust is commonly referred to as a continuing support trust.  A continuing support trust would protect the assets from the beneficiary’s judgment creditor, ex-spouse or claims in bankruptcy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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