If you’ve ever heard the term payable-on-death account or POD, you may be wondering what these bank accounts are and what they provide. In many estate plans, particularly for people who want to protect their surviving spouse, a POD account can be a good option, but it’s important first to know the details of these accounts.
To begin, a POD account can refer to any type of basic bank account set up in the U.S. including checking and savings accounts, money markets, CDs and U.S. Savings Bonds.
In general terms, a POD account is designed so that if the account owner passes away, the money in the account goes directly to a beneficiary. It’s a less expensive way to ensure you’re leaving your assets to the people you choose, and it’s very easy to create this kind of account. In fact, it actually costs nothing to add a beneficiary to your bank account.
The following are some other key bits of information to understand about a POD account.
Funds Pass Outside of Probate
Perhaps one of the biggest benefits of a POD account is the fact that they don’t go through probate. If an account isn’t designated as POD with a named beneficiary, it does have to go through the probate process before heirs can access the funds, and that can be lengthy and expensive.
With a POD account, the named beneficiary simply visits the bank and takes over control of the account after showing an original death certificate.
Funds Are Passed to the Beneficiary Regardless of the Will
Something that should be noted and is important for both people who are creating estate plans and beneficiaries to understand is that POD beneficiaries receive the bank account if they’re named on it, regardless of what other estate documents might say, for example, a will or trust.
It’s important when you’re doing estate planning to make sure your POD beneficiaries and will beneficiaries line up, to ensure your wishes are being carried out appropriately.
Naming Beneficiaries
When you decide to create an account that’s POD at your bank, you aren’t restricted to naming only one beneficiary. You can add several people as the beneficiary if you choose, and shares don’t have to be divided equally in this instance.
You can determine the proportions you’d like beneficiaries to receive of your account.
POD Accounts Don’t Let You Avoid Legal Responsibilities
It should be noted that while POD accounts do have many benefits, in particular, providing the ability to avoid probate, this doesn’t mean they can be used as a way to avoid creditors or obligations after your death. For example, if you owe debts or taxes, the funds in a POD bank account may be part of claims filed by creditors.
It’s also important to work with an estate lawyer in your state to learn more about community property, which are laws that dictate your spouses’ rights after your death because these can impact how your POD account is set up.
POD accounts have many advantages for people as they’re doing their estate planning, but it’s important to know the ins and outs of these accounts before setting them up.
