“In trust for” (ITF) and “payable on death” (POD) are two designations that you can use to pass on bank accounts or other financial accounts after you’re gone. The main difference between in trust for vs. payable on death is that the former has a trustee while the latter does not.
Which one you opt for can depend on your personal wishes for passing on those assets. Understanding how each one works can make it easier to choose between a POD vs. trust account when crafting an estate plan.
This guide will help you learn the pros and cons of each type of financial account and compare them.
What Is Payable on Death (POD)?
A payable on death account allows the owner to pass the assets in that account to a named beneficiary once they die. For example, you might open an online savings account and name your adult child as the beneficiary.
During your lifetime, you’d be able to use the account however you wish. You could make deposits or withdrawals, and the beneficiary would have no rights to the account. Once you pass away, the beneficiary would inherit the account from you. You can use POD designations with multiple bank accounts to name different beneficiaries.
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How Payable on Death Works
Payable on death works by allowing the owner of a financial account to choose one or more beneficiaries to inherit the account. The account owner would fill out a POD form or beneficiary designation form with their bank or the financial institution that holds the account.
When the POD account owner passes away, the bank would be required to release any assets in the account to the individual or individuals named as beneficiaries. The beneficiary will typically need to present a death certificate first to prove that the account owner has passed away.
In a sense, payable on death is similar to designating a beneficiary for a 401(k) plan or Individual Retirement Account (IRA). For example, 401(k) beneficiary rules do not allow access to the account while the owner is alive. Once the owner passes away, however, the beneficiary would be entitled to receive all the funds.
Payable on Death Rules
The main rule to know about payable on death is that the beneficiary has no access to the money in the account until the account owner dies. So again, say that you name your adult child as the beneficiary to your savings account. Even though they’re listed as the beneficiary, they would not be able to go to the bank and withdraw money from the account as long as you’re still living.
Additional rules apply when there are multiple beneficiaries. All beneficiaries would be entitled to an equal share of the assets in the account. For example, assume that you have four children instead of just one. If you name all of them beneficiaries on a savings account, they’d each be entitled to 25% of the account’s assets when you pass away.
What Is In Trust For?
An in trust for, or ITF, account allows a grantor to designate a trustee who will manage financial assets on behalf of one or more named beneficiaries. The grantor is the person who owns the account; they can also be the trustee during their lifetime. The beneficiary is the person who will inherit the account assets when the grantor passes away.
After the grantor dies, the trustee can continue to manage the assets in the account on behalf of the trustee. An in trust for arrangement offers a greater degree of control than payable on death in this way: The trustee is obligated to carry out the wishes of the trust grantor.
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How In Trust For Works
An in trust for arrangement works by allowing the owner of a financial account or asset to establish a trust to hold those assets. In trust for can apply to savings accounts, checking accounts, or other bank accounts, as well as investment accounts.
The grantor sets the terms of the trust, and the trustee is responsible for ensuring those terms are carried out. For example, the grantor may specify that the beneficiary cannot receive assets from the account until they turn 30 or get married. The trustee would manage the assets in the account until either one of those events comes to pass.
In Trust For Rules
In trust for rules allow for flexibility, since the grantor can decide:
• Who should serve as trustee
• Who will be named as beneficiaries
• How assets in the trust should be managed
• When and how beneficiaries will have access to those assets.
An in trust for arrangement could allow the beneficiaries access to trust assets while the grantor is still alive, if that’s the wish of the grantor. Meanwhile, trustees are required to follow a fiduciary duty when managing trust assets. In simpler terms, they must act in the best interests of the beneficiaries.
If the trust is revocable, the grantor has the power to change its terms or revoke it while they’re living. Once they pass away, the trust becomes irrevocable and cannot be altered.
In Trust For vs. Payable on Death
When choosing between in trust for vs. payable on death, it might seem a little confusing since they both allow you to designate a beneficiary for financial accounts. Comparing them side-by-side can make it easier to see how they overlap and where they differ.
Similarities
First, consider the similarities:
• Whether you designate a financial account as a POD vs. trust, the end goal is the same: to pass on assets in the account to one or more named beneficiaries. As the owner of the account, you have the power to decide who to name as a beneficiary to your accounts. If you’re creating an in trust for account, you can also choose who should act as trustee.
• Whether you choose payable on death vs. in trust for, the assets in the account avoid probate. Probate is a legal process in which a deceased person’s assets are inventoried, any outstanding debts owed by their estate are paid, and remaining assets are distributed to their heirs.
Going through probate can be costly and time-consuming for heirs. Naming a beneficiary, whether it’s through an in trust for or POD arrangement, allows those assets to bypass the probate process.
Differences
Next, look at how these two kinds of accounts vary
• The main difference between a beneficiary in trust vs. payable on death account is that one has a trustee and the other doesn’t. When you name a trustee, you’re essentially choosing someone to manage assets on behalf of your beneficiary rather than handing them over directly.
The upside is an in trust for arrangement allows you to have greater control over what happens to the assets that you’re passing on. Setting up an in trust for arrangement usually requires a little more paperwork than establishing a POD account.
Depending on the value of the assets in question, you might need an estate planning attorney’s help to set up an in trust for account.
Pros and Cons of POD
Payable on death accounts have advantages and disadvantages. Here are the main benefits to know:
• Account owners can decide who gets their assets, without needing to include them in a will.
• Beneficiaries can bypass the probate process.
• Naming beneficiaries means that heirs don’t have to go looking for lost bank accounts when you pass away.
Are there some cons? It depends.
• If you’re the account owner, you may appreciate the fact that you can leave assets to heirs and still have the use of them during your lifetime.
• Beneficiaries, on the other hand, may be unhappy about having to wait to gain control of those assets until you pass away.
Pros and Cons of In Trust For
In trust for arrangements have similar pros and cons. On the plus side:
• You’ll be able to pass money on to named heirs. If you’ve ever been in a situation where you’re trying to track down unclaimed money from deceased relatives, then you might appreciate an in trust for situation which would eliminate any questions about who gets what.
• This kind of arrangement could also be helpful in situations where it’s likely that heirs may dispute the division of assets. By creating an in trust for agreement, you can decide who will get the assets, who will manage them as trustee, and when beneficiaries can receive the assets.
• Again, both POD and in trust for accounts can be excluded from probate.
Also be aware of the potential cons:
• Trusts can be costly to establish if you’re working with an attorney.
• The trustee is also entitled to collect a fee for overseeing the trust, which can add to the total cost.
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The Takeaway
In trust for and payable on death are designed to make the process of passing on bank accounts and other financial accounts easier. You might consider setting up either one if you’d like to ensure that your assets go to the right people when you pass away. Your bank accounts typically have value, and you probably want to make sure that those assets you tended to during your lifetime get into the hands of the right people with a minimum of effort and expense.
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FAQ
Is In Trust For or Payable on Death better?
Whether it’s better to choose in trust for vs. payable on death can depend on the specifics of your situation. In trust for is usually better when you want to maintain a greater degree of control over the financial assets that you’re passing on. Payable on death may be preferable when you simply want to ensure that a specific beneficiary inherits a financial account.
Is ITF the same as POD?
ITF stands for in trust for, which is an arrangement in which a grantor establishes a trust to hold assets on behalf of one or more beneficiaries. POD stands for payable on death, which means that assets in a financial account are payable to one or more named beneficiaries when the account owner passes away.
What is the difference between In Trust For and a beneficiary?
In trust for means that a financial account or asset is being held in trust on behalf of one or more beneficiaries. A trustee is responsible for managing the assets for the beneficiaries, according to the terms set by the person who created the trust. A beneficiary is someone who stands to benefit financially from the death of another person, either by inheriting assets or receiving proceeds from a life insurance policy.
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