In Trust For vs. Payable on Death: What's the Difference

When shaping an estate plan, one of the most important steps is deciding who has access to your assets. An in trust for (ITF) account and a payable on death (POD) account both designate beneficiaries to receive assets after the accountholder’s death, but they differ in structure and legal implications. An ITF refers to an account held in trust for a named beneficiary, often providing greater control over distributions. A POD account, on the other hand, allows direct transfer of funds after the accountholder’s passing without requiring probate. While both simplify asset transfers, ITF accounts may involve more formal trust arrangements, whereas POD accounts function as straightforward beneficiary designations.

Consider working with a financial advisor for help setting up an estate plan or managing inherited money.

What Does In Trust For (ITF) Mean?

In trust for (ITF), or account in trust, refers to a bank or investment account with a named trustee. The person who creates the ITF account can set the rules and guidelines for managing their assets.

The named trustee manages the assets in the account on behalf of one or more beneficiaries. Trustees are bound by a fiduciary duty, meaning they must act in the best interests of the beneficiaries at all times.

When you set up an ITF bank account, you essentially create a trust. This can hold a number of different assets, including:

Cash
Stocks
Bonds
Real estate
Life insurance policies
Antiques and collectibles
Other investments

You can choose who will act as trustee and who will be beneficiaries. You can also decide when the beneficiaries can access the account’s assets. For example, you may set up an in trust for account to hold assets on behalf of your minor children until they turn 18, complete college or meet another condition.

How to Set Up an In Trust For Account

To set up an ITF account, the trustee must designate a beneficiary when opening the account at a financial institution. Some banks may require additional documentation, especially if distribution conditions apply. If multiple trustees are named, they share control over the account.

While ITF accounts are simpler than formal trusts, they still involve tax and legal considerations, making a financial advisor beneficial in certain cases.

In Trust For Pros and Cons

An ITF account offers a structured way to pass assets to a beneficiary, but it has both advantages and potential drawbacks. While it helps streamline the transfer process and provides some level of control over distributions, it may also introduce administrative complexities and tax considerations.

Benefits

Avoids probate. Funds transfer directly to the beneficiary, bypassing the probate process.
Lifetime control. The accountholder maintains control over assets during their lifetime.
Potential tax benefits. Depending on the structure, there may be tax advantages for your estate planning.
Protection for beneficiaries. Funds can be managed for minors or individuals who may not handle a lump sum responsibly.

Drawbacks

Limited beneficiary access. A beneficiary typically cannot access funds until the accountholder passes.
Potential tax liabilities. The account may be subject to tax rules that vary by jurisdiction.
Greater complexity. Unlike simple payable on death accounts, ITF accounts may require greater administrative oversight.
Legal implications. Depending on local laws, disputes may arise if the account is not properly structured or documented.

What Is a Payable on Death (POD) Account?

Mother and daughter study payable on death document.

A payable on death account allows you to designate a specific party to receive the account’s assets when you pass away. No trustee is involved; instead, you simply manage the account as you see fit while you’re still living.

POD accounts can function as standard checking, savings or certificate of deposit (CD) accounts during the accountholder’s lifetime. When you pass away, the beneficiaries you named to the account will receive its assets.

However, beneficiaries cannot access or spend the while the accountholder is alive. Instead, these accounts are often used to provide heirs with immediate access to cash for expenses or to simplify estate distribution.

How to Set Up a Payable on Death Account

Setting up a POD account is a straightforward process that can be done at most banks or credit unions.

For new accounts, you can designate a POD beneficiary at the time of account creation. If you already have an existing account, you can typically add a beneficiary by completing a bank-provided form.

To establish a POD designation, you’ll need to provide the beneficiary’s full name and date of birth, as well as their Social Security number in some cases. The bank then updates the account’s records to reflect this designation.

Once set, the account owner retains full control over the funds during their lifetime. Upon their passing, the beneficiary must provide a certified death certificate to the bank to claim the assets.

Keep in mind that POD designations override wills, so it’s a good idea to periodically review and update your beneficiary choices in case circumstances change.

Tax Implications of ITF and POD Accounts

While both ITF and POD accounts simplify the transfer of assets, it’s important to understand how they’re treated for tax purposes. Neither account type allows beneficiaries to completely sidestep estate or income taxes.

Even though assets in a POD account pass directly to beneficiaries, they’re still considered part of the deceased person’s estate for federal estate tax purposes. This means that if the overall estate value exceeds the federal or applicable state exemption limits, those assets could be subject to potential estate tax. However, the beneficiary typically does not pay income tax when receiving the inherited funds.

With ITF accounts, tax implications depend on the trust’s structure. Income earned by the account before the accountholder’s death is generally taxable to the grantor. After death, the trust may become a separate taxable entity, and any earnings before assets are distributed could trigger trust-level income taxes.

If the beneficiary later sells inherited investments, such as stocks or mutual funds, they may be subject to capital gains tax on any appreciation that occurs after the date of death. Beneficiaries usually receive a step-up in cost basis to the asset’s fair market value at the time of inheritance, which can significantly reduce capital gains if sold shortly thereafter.

Because state-level estate and inheritance taxes vary, consulting a tax professional or estate planning attorney can help clarify how these rules apply in your location and ensure your estate plan remains tax-efficient.

Common Mistakes to Avoid

Even though ITF and POD accounts are designed to simplify asset transfers, small oversights can cause major complications. Avoiding these common mistakes can help your plan work as intended:

Failing to update beneficiaries. Major life events, such as marriage, divorce or the birth of a child, may affect your current beneficiary designations for who will inherit your assets. It’s important to ensure that outdated designations do not interfere with your new wishes for your beneficiaries today.
Assuming POD accounts override all other documents. POD designations take precedence over wills. This means that even if there are conflicting instructions in your will, this still won’t change who receives the funds. Therefore, i’s important to always coordinate beneficiary forms with your overall estate plan.
Directly naming minors or special-needs individuals. Because minors cannot legally manage inherited funds and special-needs beneficiaries may lose eligibility for certain benefits, it’s often better to name a trust instead.
Not coordinating account designations with the estate plan. ITF and POD accounts should align with your broader financial and legal strategy. Failure to coordinate between the two could lead to unequal distributions or unintended tax consequences.

Payable On Death Pros and Cons

One of the biggest benefits of POD accounts is their simplicity, but there are also limitations concerning asset distribution.

Benefits

Easy to set up. There’s no need for an estate planning attorney; instead, simply designate a beneficiary and complete the required bank forms.
Bypasses probate. Beneficiaries can access funds quickly after an accountholder’s passing, usually after providing a death certificate.
Low cost. Unlike trusts, POD accounts typically don’t require legal fees or ongoing administrative expenses.
Immediate access. Funds are available to the beneficiary without delays from court involvement.

Drawbacks

Limited control. The accountholder cannot dictate how funds are used after their death.
No asset protection. Unlike trusts, POD accounts offer no safeguards against creditors, lawsuits or poor financial decisions by the beneficiary.
Potential family disputes. If other heirs expect a share of the funds, conflicts may arise.

In Trust For vs. Payable On Death: Which Is Better?

Whether an in trust for account or a payable on death account makes more sense can depend on your financial situation and goals.

For example, if your beneficiaries are minor children, your financial advisor or estate planning attorney may advise you to go with a trust account. This way, you can direct what should happen to the assets in case you pass away before your children are old enough to receive their inheritance.

Perhaps, you want to ensure a beneficiary has quick access to cash assets in your bank account fairly quickly when you pass away. In this case, a payable on death account could be the better option. This ensures there is money readily available to pay for your final expenses or day-to-day living expenses.

Of course, you can always have both ITF and POD accounts at the same time. Estate planning rules do not prohibit using both types of accounts.

In that scenario, you may want to talk with your financial advisor about who to designate as beneficiaries and trustees for each account. Again, your choices may depend on specific beneficiary needs, particularly if they are minors or individuals with special needs requiring financial oversight.

Bottom Line

When it comes to finetuning your estate plan, it helps to know how both ITF and POD accounts work. Each has its pros and cons that can determine what happens to your assets after you pass away. If you don’t yet have an estate plan in place, consider working with a financial advisor or estate planning attorney for help.

Tips for Estate Planning

Developing an estate plan is best done with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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There are different types of trust accounts you may consider setting up, in addition to writing a last will and testament. For example, if you want to include charitable giving as part of your estate plan you may consider a charitable remainder trust. Or a special needs trust may be necessary if you need to plan ahead for the lifetime care of a child or other family member that has special needs. Talking with an estate planning attorney can help you compare different trust options and decide which one might be the best fit.