A POD Account Does Not Eliminate the Need for a Will
Beware of the suggestion that you do not need a will if you have a pay-on-death account. This is incorrect. While a POD account is an excellent method of transferring assets outside of probate, you should still have a will.
Having a will or trust is important for several reasons. Even if you establish payable on death beneficiaries on all your accounts, it is likely you will own other types of property at your death, such as home furnishings, vehicles, jewelry, savings bonds, coins, collectibles, and other personal property. In addition, you may have compensation, payments or income owed to you at the time of your death. You may also have a power of appointment or an inheritance in your estate when you die. If you want to control how your property is distributed, it is important to have a will to dispose of any assets in your probate estate rather than allowing it to be distributed to your legal heirs under the laws of intestate succession. If you want to avoid probate entirely, then you can also make a living trust and fund the trust with your personal property and other assets. A pay-on-death account can still be a beneficial element of this type of estate plan.
Naming a POD Beneficiary Does Not Create Joint Ownership
The beneficiary of a payable-on-death account has no ownership interest in the account until the account owner’s death. The beneficiary cannot make withdrawals and cannot prevent the account owner from changing beneficiaries. The account owner is responsible for taxes on the account during his or her lifetime.
One of the advantages of naming a person as beneficiary of your POD account rather than creating a joint account is the beneficiary’s creditors cannot access the account during the account owner’s lifetime. However, if the account owner wants the beneficiary to be able to access the account to help the owner with financial affairs as part of planning for incapacity, a POD account is not the right type of account.
If the beneficiary on a pay-on-death account predeceases the account owner, the account passes to the account owner’s estate and is subject to probate. The beneficiary’s interest in the POD account terminates upon his or her death. If the original beneficiary predeceases the account owner, a new beneficiary should be named on the account.
Safe Deposit Boxes
If you are considering using a safe deposit box as part of your estate plan, see our page on Safe Deposit Boxes first.
What is a Pay-on-Death Account?
A pay-on-death account is a deposit account such as a checking, savings, money market, or certificate of deposit account with a bank or credit union on which a payable on death beneficiary is named by the account owner who will inherit the funds upon the owner’s death. This type of account is also referred to as a POD account. Owners of U.S. Treasury securities may also complete forms to name a POD beneficiary.
How to Use Pay-on-Death Accounts in an Estate Plan
If you want to leave funds in your bank accounts to your spouse, child, grandchild or another beneficiary, but do not want that person to have any right to the funds until your death, you can name that person as a pay-on-death beneficiary on the accounts. After your death, these types of accounts pass directly to the beneficiary without going through probate. Transferring assets to a beneficiary through a POD account is a type of non-probate transfer. Naming a person as a POD beneficiary does not constitute a gift.
In addition to avoiding probate, there are other advantages to using a POD account to transfer assets in your estate. The funds in the POD account are available to the named beneficiaries as soon as they provide the bank with a certified copy of the death certificate or similar type of documentation required by the bank. If you have a spouse, partner or adult child who relies on you for financial support, using a POD account will allow the person to access the funds almost immediately, rather than waiting through months or even years of probate.
Another advantage of using a pay-on-death account as part of your estate plan is you can change the beneficiaries on the account at any time without having to update your will or living trust. If you think you may want to change the designated beneficiaries at some time in the future, using a POD account offers the flexibility of making those changes simply by going to your financial institution and completing the required forms.
To set up a POD beneficiary, ask your bank or financial institution for the forms you must complete to name a beneficiary. If you want to leave money to multiple beneficiaries in equal amounts, ask your bank or credit union representative for assistance. Before using this type of non-probate transfer as part of your estate plan, consult an attorney about the state laws applicable to pay-on-death deposit accounts in your state.
Surviving Spouse’s Rights and POD Accounts
A spouse may attempt to use a payable-on-death bank account as a method of disinheriting a husband or wife by naming a non-spouse as beneficiary. State laws vary on the surviving spouse’s inheritance rights in these cases. In some states, this type of non-probate transfer may be used to disinherit the surviving spouse from receiving the funds in the account. However, such states are in the minority. In the majority of states, a surviving spouse has a right to file a claim in probate for a statutory elective share of the deceased spouse’s augmented estate. Non-probate assets such as pay-on-death accounts are included in the augmented estate. In these states, unless the surviving spouse signed a valid pre-nuptial or post-nuptial agreement or similar type of written agreement waiving his or her right to a spousal share, placing funds in an account payable to a non-spouse beneficiary on your death will generally not be effective in disinheriting your spouse entirely. If you live in a community property state, your spouse is entitled to a one-half share of all community property assets. See our Community Property page for more information. Consult an estate planning attorney licensed in the state where you are domiciled for guidance on the use of pay-on-death accounts to leave funds to a non-spousal beneficiary if you are married.
Non-Probate Transfers and Estate Planning
For more information on the types of assets that pass without probate, see our Non-Probate Transfers page. For information on different methods of holding title as part of your estate plan, visit our Title to Property page.
