Payable on death (POD) accounts are a type of bank account that allows account holders to name one or more beneficiaries who will inherit the account’s funds after the account holder’s death. POD accounts can offer several benefits, including avoiding probate and providing quick access to funds for beneficiaries. However, they also have some drawbacks, such as limited control over the account during the owner’s lifetime and potential conflicts with other estate planning documents.
What Is Payable on Death (POD)?
Payable on death (POD) is a type of account designation that allows an account holder to name one or more beneficiaries who will inherit the account’s funds after the account holder’s death. POD accounts are commonly used as a simple and inexpensive way to transfer assets to heirs outside of the probate process.
POD accounts can be set up for various types of accounts, including savings accounts, checking accounts, and certificates of deposit (CDs). When the account owner passes away, the funds in the account are transferred to the named beneficiaries, who will need to provide proof of identity and the account owner’s death to claim the funds.
One key benefit of POD accounts is that they can help to avoid the probate process, which can be time-consuming and expensive. In addition, POD accounts can provide quick access to funds for beneficiaries, without the need for court approval or other legal processes.
However, there are also some drawbacks to consider when using POD accounts. For example, the account owner has limited control over the account during their lifetime, and the named beneficiaries have no legal claim to the funds until the account owner passes away. In addition, if there are conflicts between the POD designation and other estate planning documents, such as a will or trust, it can lead to confusion or legal disputes.
Benefits of a POD account
POD accounts can offer several advantages, including:
- Provides easy and quick access to funds for beneficiaries
When the account owner passes away, the funds in the account are typically available to the beneficiaries immediately, without having to go through the probate process. This can be particularly beneficial if the beneficiaries need the funds right away to cover expenses or debts.
- Avoids the probate process, which can be lengthy and expensive
Probate is a court-supervised process for distributing a deceased person’s assets, which can be time-consuming and costly. By designating beneficiaries on a POD account, the funds in the account pass directly to them without going through probate.
- Offers a level of privacy since it’s not a public record
POD accounts are not subject to public record keeping, which means that the account owner’s financial information is kept private.
- Allows for flexibility in changing beneficiaries
The account owner can change the beneficiaries on the account at any time, which can be useful if circumstances change or if the owner wants to add or remove beneficiaries.
Drawbacks of a POD account
Despite their benefits, POD accounts also have some drawbacks that are important to consider:
- Limits control over the account during the account owner’s lifetime
Once a POD account is established, the account owner’s ability to make changes to the account is limited. For example, the owner cannot revoke the account or change the beneficiaries without the beneficiaries’ consent.
- May cause unintended consequences for estate planning
POD accounts can sometimes conflict with other estate planning documents, such as wills or trusts. For example, if the account owner intends for all of their assets to be distributed equally among their children, but names only one child as the POD beneficiary, this could create an unintended unequal distribution.
- Can be subject to creditor claims or legal disputes
If the account owner has outstanding debts or legal judgments against them, the funds in a POD account could be subject to creditor claims or legal disputes.
- Doesn’t allow for equal distribution among multiple beneficiaries
POD accounts can only name one or a few beneficiaries, which can make it difficult to divide assets equally among multiple heirs.
When a POD account may be appropriate
POD accounts can be a useful tool in certain situations, such as:
- When the account owner has a small estate and wants to simplify the distribution of assets
- When the account owner wants to avoid the probate process
- When the account owner wants to leave funds to a specific individual or organization
Alternatives to a POD account
There are several alternatives to POD accounts that can achieve similar goals, including:
- A revocable living trust: This is a legal document that allows the account owner to transfer ownership of their assets to the trust, which then passes to the beneficiaries after the owner’s death. Trusts can provide more flexibility than POD accounts in terms of controlling assets and avoiding probate.
- A joint account with right of survivorship: This is a type of bank account that allows two or more people to own the account together, and when one owner passes away, the surviving owner(s) automatically inherit the account.
Who can be named as a beneficiary on a POD account?
Generally, anyone can be named as a beneficiary on a POD account, including individuals, organizations, or even other trusts or estates.
What happens if a POD beneficiary passes away before the account owner?
If a named beneficiary on a POD account passes away before the account owner, the account owner can name a new beneficiary. If the account owner does not name a new beneficiary, the funds will typically pass to the account owner’s estate.
Can a POD account be contested?
Yes, a POD account can be contested in some situations, such as if there is a dispute over the account owner’s mental capacity or if the account owner was coerced into naming a beneficiary.
- Payable on death (POD) accounts can offer several benefits, including quick access to funds for beneficiaries and avoiding probate.
- However, they also have some drawbacks, such as limited control over the account during the owner’s lifetime and potential conflicts with other estate planning documents.
- POD accounts can be appropriate in certain situations, but there are also alternatives to consider, such as revocable living trusts or joint accounts with right of survivorship.
- When setting up a POD account, it’s important to consider the potential benefits and drawbacks, and to seek the advice of a qualified financial professional or estate planning attorney.
View Article Sources
- Bank or Brokerage Accounts – Smithsonian Institution
- Transferring Property at Death Without Probate: Using Payable on Death Accounts and Beneficiary Deeds – University of Richmond School of Law
- Payable on Death Account – Finance Strategists