A familiar term often used in estate planning discussions involves a "TOD" or "POD" designation. These abbreviated designations of "Transfer on Death" and "Pay on Death" and are usually used in the context of certain financial accounts such as checking,savings, or money market accounts.
These designations are made in the account records of the financial institution where the account is located. Importantly, upon the death of the account owner, the funds or assets in the account are paid or transferred directly to the designated recipient. The account is not impacted by the owner's Last Will and Testament nor by their Trust. This means that the funds or assets are not included in the deceased person's probate estate.
TOD and POD designations are useful when an owner wants the account to be received all at once by an adult recipient. By understanding this statement, you can see where TOD and POD designations are not useful, e.g. if you intend to name minor beneficiaries. The designations also are not useful if the owner does not want the recipient to receive the funds all at once. In either of those cases, a Trust would be a better way to control and distribute the funds.
There are a few risks involved in using TOD and POD designations. One risk is that the financial institution fails to accurately note the designation on the account. In that event, the account may end up in probate or worse--going to the wrong person. I know this can happen because it occurred with my mother's POD designation on her account--the bank messed up the designation so we had to open a probate to transfer the account. Another risk is that the person named on the TOD or POD dies before the account owner. If there is no alternate or contingent designee, then the account could end up in probate.