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 account holder’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 more control over distributions. A POD account, on the other hand, allows direct transfer of funds after the account holder’s passing without going through 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 if you need help setting up an estate plan or managing inherited money. Connect with your advisor matches today.

What Does In Trust For (ITF) Mean?

In trust for (ITF), or account in trust, refers to a bank or investment account that has a named trustee. This trustee manages the assets in the account on behalf of one or more beneficiaries. The person who creates an in trust for account can set the rules or guidelines for how those assets should be managed. Trustees are bound to a fiduciary duty standard, meaning they must act in the best interests of the beneficiaries at all times.

When you set up an in trust for bank account, you’re essentially creating a trust. You can transfer a number of assets into this account, including:

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

You can choose who should act as trustee and who to name as beneficiaries. You can also decide when the beneficiaries are able to have access to assets in the account. 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 some other condition.

How to Set Up an In Trust For Account

To set up an ITF account, the trustee designates 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 professional guidance 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 comes with advantages and potential drawbacks. While it allows for a streamlined transfer process and some level of control over distributions, it may also introduce administrative complexities and tax considerations.

Here’s a closer look at the potential benefits and drawbacks of these arrangements:

Benefits

Avoids probate: Funds transfer directly to the beneficiary, bypassing the probate process.
Flexible control: The account holder maintains control over assets during their lifetime.
Potential tax benefits: Depending on the structure, it may offer tax advantages for estate planning.
Can protect beneficiaries: Funds can be managed for minors or individuals who may not handle a lump sum responsibly.

Drawbacks

Limited beneficiary access: The beneficiary typically cannot access funds until the account holder passes.
Potential tax liabilities: The account may be subject to tax rules that vary by jurisdiction.
Complexity compared to POD accounts: Unlike simple payable on death accounts, ITF accounts may require more administrative oversight.
Legal implications: Depending on local laws, disputes can 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 designation means that someone you name can receive the assets in the account when you pass away. There’s no trustee involved. Instead, you continue to manage the account as you see fit while you’re still living.

POD accounts function as standard checking, savings or certificate of deposit (CD) accounts during the account holder’s lifetime. When you pass away, the person or persons you named as beneficiaries to the account can receive the assets in it. However, beneficiaries cannot access or spend the funds while the account holder is alive.t.

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. If you’re opening a new account, 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, date of birth, and sometimes their Social Security number. The bank will update the account 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 beneficiary choices if circumstances change.

Payable On Death Pros and Cons

One of the biggest benefits is their simplicity, but they also come with limitations in terms of control over asset distribution.

Benefits

Easy to set up: No need for an estate planning attorney – simply designate a beneficiary and complete bank forms.
Bypasses probate: Beneficiaries can access funds quickly after the account holder’s passing, usually by 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 or court involvement.

Drawbacks

Limited control: The account holder cannot dictate how the funds are used after 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. If your beneficiaries are minor children, for example, then 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.

On the other hand, if you want to ensure that a beneficiary is able to access cash assets in your bank account fairly quickly if you pass away then a payable on death account could be the better option. This way, they’d have money readily available to pay for your final expenses or day-to-day living expenses. Of course, you could always have an in trust for account and a payable on death account at the same time. Estate planning rules do not prohibit having both types of accounts.

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

Bottom Line

Understanding both ITF and POD accounts can help fine-tune your estate plan. The distinction isn’t a complicated one but knowing how they work does matter for deciding what happens to your assets after you pass away. If you don’t have an estate plan in place yet, that’s something a financial advisor or estate planning attorney can help with.

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.
One way to quickly see how you’re doing in successfully completing your retirement planning is by using our free retirement calculator.
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.