Probate—the legal process of validating a will and distributing assets—can be time-consuming, expensive, and public. Fortunately, a Payable-on-Death (POD) account is a simple, low-cost way to bypass probate for specific assets. Here’s a detailed guide to setting one up.
What Is a Payable-on-Death (POD) Account?
A POD account, also called a “Totten trust,” is a financial account (e.g., savings, checking, or CD) that automatically transfers to a named beneficiary when the account holder dies. The beneficiary has no rights to the funds until the owner’s death, and the account remains fully under the owner’s control during their lifetime.
Why Use a POD Account?
- Avoid Probate: Assets bypass court proceedings, speeding up transfers to beneficiaries.
- Simplicity: No need for complex legal documents—just fill out a form with your bank.
- Flexibility: You can change beneficiaries anytime.
- Privacy: Unlike probate, transfers remain private.
Types of Accounts That Can Be POD
Most financial institutions allow POD designations for:
- Bank accounts (checking, savings)
- Certificates of Deposit (CDs)
- Retirement accounts (check with your provider, as some use separate beneficiary forms)
- Brokerage accounts (though Transfer-on-Death deeds may apply for investments)
Step-by-Step Guide to Setting Up a POD Account
- Choose the Right Account
Decide which account(s) you want to designate as POD. Ensure the institution allows POD beneficiaries. - Contact Your Financial Institution
Visit your bank, credit union, or brokerage in person or online. Request a POD beneficiary form. - Complete the POD Designation Form
Provide the beneficiary’s full legal name, contact information, and Social Security Number (if required).- You can name multiple beneficiaries and specify percentages (e.g., 50% to Child A, 50% to Child B).
- Review the Terms
Confirm that the institution does not restrict beneficiary designations (e.g., some states require spousal consent for joint accounts). - Update as Needed
Life changes (marriage, divorce, births)? Revisit your POD designations regularly. To make changes, submit a new form. - Inform Your Beneficiary
Ensure they know about the account and where to find documentation after your passing.
Pros and Cons of POD Accounts
Pros:
- Quick, no-cost probate avoidance.
- Retain full control of assets during your lifetime.
- Easy to update.
Cons:
- Doesn’t Cover All Assets: Only applies to the designated account(s). Other assets (real estate, vehicles) need separate planning.
- Potential Disputes: If a beneficiary predeceases you, their share may not automatically pass to their heirs unless specified.
- Tax Implications: Large accounts could incur estate taxes, though most individuals fall below federal thresholds.
Common Mistakes to Avoid
- Forgetting to Update Beneficiaries: An ex-spouse or deceased relative could unintentionally inherit assets.
- Overlooking Joint Accounts: Joint accounts with rights of survivorship automatically transfer to the co-owner, overriding POD terms.
- Ignoring State Laws: Some states limit POD accounts for married couples or require notarization.
POD Accounts vs. Other Estate Planning Tools
- Wills: POD accounts override wills, so ensure consistency.
- Trusts: Trusts offer more control (e.g., staggered distributions) but are costlier to set up.
- Joint Ownership: Joint accounts transfer immediately to co-owners but expose assets to their creditors.
FAQs
Q: What if my beneficiary dies before me?
A: Update your POD designation immediately. If no living beneficiary exists, the account may go through probate.
Q: Can I name a minor as a beneficiary?
A: Yes, but a guardian or custodian must manage the funds until the child reaches adulthood.
Q: Are POD accounts revocable?
A: Yes—you can change or remove beneficiaries anytime.
Final Tips
- Combine POD accounts with a will or trust for comprehensive estate planning.
- Keep records of all POD designations with your estate documents.
- Consult an estate attorney for complex situations (e.g., blended families or large estates).
