Should You Use a Payable-On-Death Account?

Probate planning involves the distribution of your property and assets in the event that you pass away. You may be familiar with some of the basics of probate planning, such as developing a will that can determine possessions for your loved ones, or establishing a trust that determines how property left to others must be spent. There are many options for those going through the probate process. Being informed on all of them can help you decide what your best options are.

POD Account Vs. A Trust

One of the ways that people keep assets out of the probate process if by developing a trust. While it ensures that your money goes where you want it to, trusts can be expensive to develop and not worth it for some people. For those that can't afford trusts, one option to keep assets from going through probate is to develop a payable-on-death (POD) account.

To develop a POD account, you notify the bank as to who you'd like to inherit the money in the account or certificate of deposit. The account is then transferred by the bank without going through the probate process, as effectively as if it did. Like a trust, the beneficiary has no right to the money while you are alive and the account can be moved to a different name or closed if you decide to change your mind.

Other benefits of a POD account include:

• Easy to create
• No limit on the amount of money left
• Costs nothing to designate a beneficiary
• Simple to claim the money after the original holder's death

One downfall to using a POD account is the inability to name an alternate beneficiary. For example, a trust can allow you to name a grandchild's parent as the overseer of their account until they reach a certain age. With a POD account, you are unable to do so. In addition, using a POD account does not mean that this money is exempt from being claimed by creditors of any debts you incurred. Additionally, in community property states, your spouse is entitled to half of your account. If the beneficiary is someone other than your spouse, 50% of the proceeds may be taken out of the account unless you have the written permission of your spouse.

If you are wondering if your estate plan should use a POD account, consult with a local probate attorney. They will be familiar with your state's laws of POD accounts and the protections you will have to take to ensure that property left in these accounts is able to seamlessly transition to the beneficiary.