Avoiding Probate with a Payable on Death Account
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What Is Probate?
Probate refers to the legal process involved in administering a deceased person’s estate. The process includes determining whether a will is valid, collecting all assets, paying debts and taxes, and distributing property to the deceased person’s heirs or named beneficiaries.
Depending on the state, probate can be very complicated and expensive, involving attorneys’ fees, court costs, appraisers’ fees, and the executor’s fees.
Are There Any Alternatives to Probate?
Among the ways to avoid the costs and inconveniences associated with probate are setting up a "payable on death" (POD) bank account. Despite the morbid name reminiscent of a bank account owned by mafia gangsters, these accounts are for everyone. These so-called "Totten trusts" can be opened at most banks, brokerage houses, credit unions, and other financial institutions.
Banks offering POD accounts provide a "beneficiary designation" form, on which the account owner can name anyone who will get the money in the event that the account owner dies. Since money passes automatically to the beneficiary upon the death of the owner, there is no need for the probate court to investigate to whom this money should go. Just make sure not to name a beneficiary who is a convicted murderer! (All joking aside, generally only spouses, children, grandchildren, parents, and siblings can be named as beneficiaries.)
What Are the Advantages of POD Accounts?
There are several distinct advantages of a payable on death account over other probate-avoidance accounts such as jointly owned accounts and trusts. In a jointly owned account, a child’s creditors can get to the parent’s money, but a POD account remains the parent’s until death. In a POD account, beneficiaries can be changed or removed, or the money can be spent, at any time.
Trusts are useful for avoiding probate fees but often involve CPA and attorney costs. With POD accounts, these costs can be avoided. However, POD accounts are still considered part of the estate for inheritance, and gift tax purposes.
Should I Seek Legal Help?
If you are considering creating a payable on death account as an alternative to probate, you should contact an attorney specializing in wills, trusts and estates. An experienced attorney will ensure that you and your loved ones are protected.
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Last Modified: 03-13-2014 10:38 AM PDT
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