Pros and Cons of Payable on Death Accounts
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What Is a "Payable on Death" Account?
A Payable on Death Account, or POD account, is a common way to keep monetary assets out of the probate system. It can be set up when the bank account holder gives the bank directions to transfer the funds to another person upon the death of the account owner.
While the account holder is still alive, they can access the bank account even if a POD arrangement has been set up. The recipient will simply receive whatever funds were left in the account at the time of the account owner’s death. Payable on death accounts may be called by different names, include: informal trusts, revocable bank account trusts, tentative trust, or ITF accounts (“in trust for”). Totten trusts are sometimes considered payable on death accounts.
What Are Some of the Pros and Cons of Payable on Death Accounts?
Before you set one up, it’s helpful to learn some of the pros and cons of POD accounts. Some of the pros include:
- Easy to Create: Generally all you need to do is inform the bank that you’d like to make your account payable to a specific person upon your death. It’s usually free to do this. POD accounts also help avoid the costs of probate.
- No Monetary Limitations: There are usually no limits on the amount of money that you can transfer through a payable on death account.
- Easy to Claim the Money: The recipient only needs to present the bank with a proof of ID and a death certificate copy to claim the money.
- Multiple Beneficiaries: While you are alive, you may named as many beneficiaries of your POD account as you would like. The proceeds may be split evenly between all beneficiaries or divided in any manner you prefer. You may also change the beneficiary or beneficaries of your POD account at any time.
Some of the cons associated with a POD account include:
- No Alternate Beneficiaries: You will not be able to name an alternate beneficiary for your POD account. This means that if your named beneficiary passes away before you, your account funds will be distributed to your estate, thus passing through probate proceedings. However, as mentioned above, it is possible (and sometimes advisable) to name more than one beneficiary for your POD accounts. Your POD accounts will only pass through probate in the event that all of your named beneficiaries pass away before you.
- No Rights for the Beneficiary: While you are still alive, the beneficiary doesn’t have any rights to claim the account funds. They can only claim the money upon your death. This can create a delay if you happen to change your mind and the beneficiary needs the money immediately.
What Other Options Do I Have Besides a POD Account?
If a payable on death account seems unsuitable for your needs, you may have a few other options for transferring your account money. For example, you can transfer the money to a beneficiary through a will, which is actually the standard route for inheritance issues. Or, it may be possible to create a revocable living trust, which is very similar to a POD account.
Like a POD, both a will and a trust accomplish can help you avoid having your money pass through probate. Also, wills and trusts allow the person more flexibility than POD accounts (such as naming alternate beneficiaries). On the other hand, there may be more complex requirements in order for a will or trust to be valid- POD’s are usually much simpler to create.
Do I Need a Lawyer for Help with a Payable on Death Account?
If you need assistance with a payable on death account, it’s to your advantage to hire an estate lawyer in your area. Your attorney can advise you on your estate planning options and alternatives, including wills and trusts. In the event of a dispute over your assets, your lawyer can help defend your interests in court during a lawsuit.
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Last Modified: 12-09-2014 02:07 PM PST
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