A payable on death account is one means of transferring assets to heirs.
There are several ways assets are distributed.
The most commonly recognized is a last will and testament.
Other options include gifts, trusts, and beneficiary designations.
According to a recent Sports Grind Entertainment article titled “Payable on Death (POD) Accounts,” a payable on death account falls under the beneficiary designation category.
A payable on death account is a type of bank account or credit union account.
Unlike a traditional bank account, this type includes a beneficiary named directly on the account.
Why might someone choose this account over the traditional bank account?
The first benefit is probate avoidance.
Probate can be a long, expensive, and public process.
The executor must file the last will and testament, notify creditors, pay debts, and locate heirs prior to distributing assets.
Even with a straightforward last will and testament, your heirs will not receive their inheritances quickly.
When can the beneficiary access the funds in the account?
As suggested by the name, the money is available to the beneficiary when you die.
This means a payable on death account is insufficient for incapacity planning.
To enable access to these funds in the event of severe illness or injury short of death, you would require a trust, a jointly owned bank account, or a general durable power of attorney.
With a trust, the trustee will be able to use the funds for your benefit according to the guidelines provided in the trust document.
With a jointly owned bank account, the other owner would be able to access and use the funds regardless your capacity.
This can endanger your assets if the other owner has financial liabilities.
A general durable power of attorney allows you to name an agent to pay bills and manage other considerations when you cannot do so yourself.
So, how do you set up a payable on death account?
First, ask your experienced estate planning attorney whether a payable on death account aligns with your comprehensive estate planning goals.
If it does, ask your bank whether a beneficiary can be added to an existing account or whether a new account should be created.
Finally, think very carefully about the beneficiary (or beneficiaries) you would like to inherit your account and then get it done.
Reference: Sports Grind Entertainment (May 2, 2021) “Payable on Death (POD) Accounts”