How to Unlock the Benefits of Payable on Death (POD) Accounts: A Guide

When it comes to making as estate plan, financial security for loved ones is obviously a top priority. One often overlooked yet incredibly useful tool for this purpose is the Payable on Death (POD) account, available at many banks and financial institutions. POD accounts offer a straightforward and efficient way to transfer assets to beneficiaries upon the account holder’s passing. In this article, we will delve into what POD accounts are, how they work, their advantages, and considerations to keep in mind.

Understanding Payable on Death (POD) Accounts. A Payable on Death account is a type of bank account relationship that allows the account holder to designate one or more beneficiaries who will receive the funds held in the account upon the account holder’s death. The primary account holder retains full control and ownership of the funds during their lifetime, with the ability to withdraw, deposit, or close the account as they see fit. However, upon the account holder’s passing, the funds in the account bypass probate and are transferred directly to the designated beneficiaries without need for probate administration.

How Do POD Accounts Work? Establishing a POD account is an uncomplicated process. Account holders inform their bank or financial institution of their intent to designate beneficiaries for their account. Typically, this involves completing a beneficiary designation form provided by the bank, where the account holder specifies the name(s) of the beneficiary(ies) and their relationship to the account holder. Beneficiaries can be individuals, trusts, or even charitable organizations.

It is important to note that until the account holder’s death, the designated beneficiaries have no rights to the funds in the POD account. The account holder maintains complete control and can amend, alter, or revoke beneficiaries as desired. Additionally, because POD accounts are a form of revocable trust, they do not require legal assistance or complex estate planning documents to establish; although any seasoned attorney will encourage you to use a POD in conjunction with a well-established estate plan.

Advantages of Payable on Death (POD) Accounts. (1) Avoidance of Probate: One of the most significant advantages of POD accounts is that they bypass the probate process. Probate is the court-supervised process of distributing a deceased person’s assets, which can be time-consuming, expensive, and subject to public record. By designating beneficiaries through a POD account, the assets held in the account transfer directly to the beneficiaries outside of probate, saving time and potential costs; and (2) Privacy: Because POD accounts transfer assets directly to beneficiaries outside of probate, they offer a level of privacy that traditional wills may not provide. The details of the account, including the amount and beneficiaries, are typically not part of the public record, offering a more discreet way to transfer assets; and (3) Ease of Set-Up and Management: Compared to other estate planning tools, such as trusts, POD accounts are easy to establish and manage. Account holders can designate beneficiaries and amend the beneficiary designation as needed without the need for legal assistance; and (4) Flexibility: POD accounts provide flexibility in terms of beneficiary designations. Account holders can name multiple beneficiaries and specify the percentage of assets each beneficiary will receive, allowing for customized distribution of assets according to the account holder’s wishes.

Considerations for Payable on Death (POD) Accounts. While POD accounts offer numerous benefits, there are some cautions or other considerations to keep in mind: (1) Limitations on Account Types: Not all bank accounts are eligible for POD designation. Typically, POD accounts are available for savings accounts, checking accounts, certificates of deposit (CDs), and money market accounts. Retirement accounts such as IRAs and 401(k)s have their own beneficiary designation process; and (2) Potential Disputes: In some cases, disputes may arise among beneficiaries regarding the distribution of assets from a POD account, especially if the account holder did not communicate their wishes clearly or if family dynamics are complex. Open communication and clarity in beneficiary designations can help mitigate potential disputes; and (3) Estate Tax Implications: While assets transferred through a POD account avoid probate, they may still be subject to estate taxes depending on the total value of the estate and applicable tax laws. Consulting with a financial advisor or estate planning attorney can provide guidance on tax implications and strategies to minimize tax liabilities.

In Conclusion, POD accounts offer a convenient and efficient way to transfer assets to beneficiaries while bypassing the probate process. With their simplicity, flexibility, and potential to provide privacy, POD accounts are worth considering as part of an overall estate planning strategy. By understanding how POD accounts work and considering the advantages and considerations, individuals can make informed decisions to safeguard their financial legacy for their loved ones.

Todd Miller is a monthly contributor and regularly writes and speaks on various legal topics including estate planning, probate, and elder law. He formed the Law Office of Todd Miller, LLC, 1305 Southwest Blvd., Suite A, Jefferson City, Missouri in 2006. He has been recognized as 2016 Adviser of the Year by GolfInc; Golf Tax Consultant of the Year by Boardroom Magazine three times; and “10 Best” attorneys by the American Institute of Family Law Attorneys and “10 Best” attorneys by the American Institute of Criminal Law Attorneys. Mr. Miller earned his juris doctorate degree from the University of Missouri School of Law in 1999 and graduated with honors from Lincoln University in 1991. You may find him at www.toddmillerlaw.com (573) 634-2838 or on Facebook, LinkedIn, and Twitter.