By Team Tomorrow
Published September 3, 2019
Payable-on-death (POD) accounts are accounts that transfer to a beneficiary upon the death of the account holder. POD accounts can be a convenient way to transfer liquid assets to an heir directly rather than waiting for probate or distribution by a trustee, but they are not a replacement for estate planning and can create problems if they conflict with a current estate plan.
POD accounts are simple to set up. You can talk to a teller at your bank and tell them you want to make your account a payable-on-death account, or you can tell them you want to name a beneficiary on your account. They will provide you with the appropriate paperwork to fill out in order to name a beneficiary or beneficiaries, and generally there is no cost to do so.
The account balance will be given to the beneficiary after the account holder has died, as long as they present the appropriate documentation and there are no other claims to the account.
You can name whoever you like as a beneficiary, and as many as you would like. You can also change the named beneficiaries any time, as long as you have the capacity to do so. You cannot, however, name alternate beneficiaries. That means that if the person or persons you named as beneficiaries pass away before you, and you do not select a new beneficiary, the account will pass to your estate.
While you are still alive, the beneficiary has no claim on the account and no right to access it.
POD accounts are not judgment proof. If there is a judgment against the account holder, unpaid taxes, or other creditors with claims, they may have a claim on the money on the account.
If the account holder lives in a community property state, then their spouse may also have a claim on one-half of the assets in the account (if acquired during marriage or as marital property.
After the account holder has died, a beneficiary can claim the account by presenting ID and a certified copy of the account holder’s death certificate. The beneficiary can access the funds by withdrawing some or all of the balance of the account or by transferring the funds to a new account.
If the account is a certificate (CD), the funds may be left in the account until it matures, have the CD retitled in the beneficiary’s name, or withdraw the funds (usually you will have to pay a penalty for withdrawing prior to the CD maturing).
POD accounts can be helpful in some circumstances. If you have an account with a relatively small balance and very few intended heirs, then perhaps a POD account may make sense. In that situation, as long as there is no conflict between the last will and testament provisions and the POD beneficiary designations, and the estate has the necessary cash to pay any debts and expenses, the POD account may simplify the estate.
POD accounts may be easy to set up, but the results can be complicated.
If you have set up a POD account as part of a comprehensive estate plan, and are fully aware of what all the details are, and remain so until death, then having a POD may benefit one. However, there are a number of ways in which things can go wrong.
For instance, if you set up a POD account and then later write a will that conflicts with your beneficiary designation, then your estate will run into problems. If you have chosen multiple beneficiaries and they cannot decide what to do about a CD or an asset that is not easily divisible, then your estate will have problems.
If you choose someone as a beneficiary, and they die before you, and you fail to update the POD beneficiary designation, then your POD account will function just like a normal account.
Having assets pass directly to a beneficiary can also make things complicated for your estate executor, because they may not have easy access to assets that are needed to pay estate debts and expenses.
POD accounts and TOD accounts are similar but apply to different types of accounts or assets. POD accounts normally refer to bank accounts (checking or savings accounts) or certificates of deposit (CDs).
TOD accounts mainly refer to brokerage or investment accounts, and sometimes real estate.
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