In order to distribute your assets to your heirs after you pass on, your estate typically must go through a legal process known as probate. This can be a lengthy and expensive process, so many people look for ways to avoid – or at least streamline – the probate process.
A trust is one way to do this but you can also use payable on death (POD) accounts to bypass probate on certain assets such as bank and investment accounts.
Also called transfer on death (TOD) accounts or trust for accounts (ITF), these accounts allow you to include a beneficiary designation as part of the account documents. After your death, your beneficiary can simply go to the bank or the investment company with proof of your death (a death certificate) and can access the account.
Disadvantages of Payable on Death Accounts
Unlike a typical joint account, the beneficiary of your POD account cannot place any claims on the funds in the account while you are alive. However, the method is not without drawbacks:
- When you are naming a single beneficiary of your POD account, you are in effect disinheriting your other heirs which can create a rift in the family.
- If your beneficiary dies before you and you fail to update your account, then the account will be added to your estate at the time of your death and go through probate. If you have named two or more beneficiaries and the death of one beneficiary precedes yours, the bank/investment company will face a problem in dividing the account.
- If you later decide to make changes to your POD account, such as shifting it into your Revocable Living Trust, some institutions might want you to get the consent of the beneficiaries as well.
- Naming a beneficiary does not allow anyone to manage your account on your behalf if you become incapacitated, so your family may have to go through a conservatorship/guardianship process to manage your account and other assets.
Ultimately, you should consult an estate planning attorney to determine the best way to title your assets and provide for your heirs.
Hammond Law Group – Avoiding Probate in Colorado Springs and Denver CO
Is it necessary to have a payable on death designation on a checking account in order to have named beneficiaries collect on death. That is, is it sufficient to just name the beneficiaries without adding the payable on death designation on the account?
Hi Mr. Rosenthal,
It will depend on what your bank wants. Best practice is to meet with a personal banker at your financial institution and they can help you ensure your designations are correct. If you need further assistance please give our office a call at 719-520-1474.
The Hammond Law Group Team