Payable-on-death (POD) accounts are a type of bank account that, at the owner’s death, allow the remaining money in the account to pass directly to the beneficiaries named by the account owner, offering an easy way to keep money out of probate. What are the benefits to payable-on-death accounts? This article will break it down.
POD accounts, sometimes referred to Totten trust, tentative trust, revocable bank account trust and even ITF account, which stands for “in trust for.” These types of accounts can include checking, savings, money market or certificate of deposit accounts. Even U.S. savings bonds can become a POD account. It’s easy to open a payable-on-death account, all you need to do is properly notify your bank how you want to leave the money in your account and the bank and the beneficiary you name will do the rest.
It’s important to note that as long as you’re living, your beneficiary has no rights to your money. If you need money or change your mind about the beneficiary, you can name a different beneficiary or simply close the account. At your death, the POD account will pass to the beneficiaries named on the account regardless if you have a last will and testament or a revocable living trust that states otherwise. This can be seen as a downfall, but there are numerous positive aspects:
- They’re easy to create
- There’s no limit on how much money you can leave
- Designating a beneficiary costs nothing
- It’s easy for the beneficiary to claim the money after you’re gone
Avoiding probate doesn’t mean you can use the account to avoid your legal obligations. If you don’t leave enough assets to pay your debts and taxes or to support your spouse or minor children temporarily, the account or any asset that passes outside probate may be subject to the claims of creditors or your family. It is important to remember that your spouse has rights, especially if you live in a community property state where your spouse or registered domestic partner could already be the legal owner of half your account. So, assuming the money in your payable-on-death account is community property, and you’re looking to name someone other than your spouse as the beneficiary for the whole account, you should get your spouse’s consent. Otherwise, your spouse can assert a claim on your death to half the money.
In non-community property states, a surviving spouse who isn’t happy with what she or he is inheriting may be able to claim part of the money you left to someone else. It’s rare, though, that spouses go to court to claim these assets.
After your history, the beneficiary claims the money by showing the bank a certified copy of the death certificate and proof of his or her identity. The bank’s records will make it clear that the beneficiary is entitled to the money in the account. There is no need for anything from a probate court. State law will dictate how long to wait before the funds are released.
Are you wondering if a POD is right for you? Possibly a trust would be a better way to manage your estate plan. Either way, let us help you figure out the right tools for your situation. Contact us today!