Payable on Death (POD) is an arrangement between a bank or credit union and a client that designates beneficiaries to receive the client’s assets upon their death. This arrangement ensures the immediate transfer of assets, bypassing probate court.
POD is also commonly known as a Totten Trust.
Key Takeaways
- Payable on Death (POD) enables a bank or credit union client to designate beneficiaries to their accounts or certificates of deposit (CDs).
- POD (or Totten Trust) forms are simpler to manage than traditional trusts and wills.
- In POD agreements, the beneficiary inherits assets upon the account holder’s death without the delay or cost associated with probate court.
Why Payable on Death (POD) Accounts Matter
An individual can establish a POD account to ensure their savings and deposit certificates are transferred directly to a named beneficiary, avoiding probate court. This can be done by completing a simple beneficiary designation form at the bank or credit union, a cost-free service provided by financial institutions.
The named beneficiary has no rights over the account while the account holder is alive. Upon the account holder’s death, the beneficiary becomes the owner of the account automatically, bypassing any estate and probate processes. However, if there are unpaid debts or taxes, creditors can still make claims against the POD account.
If the account holder resides in a community property state, their spouse may have a claim to half of the POD assets, excluding those acquired before marriage. If the account is jointly owned, funds can only be accessed by beneficiaries after the last account owner passes away.
Designating more than one beneficiary is possible; the account owner can adjust or cancel beneficiaries or close the account entirely at any time. Beneficiaries claim the funds by proving their identity and providing a certified copy of the death certificate.
Benefits of a POD Account
Choosing a POD arrangement offers significant benefits, including enhanced coverage under the Federal Deposit Insurance Corp. (FDIC). FDIC insures individual accounts up to $250,000, but multiple POD accounts with different beneficiaries can increase this coverage to $1,250,000 across five accounts, each insured for $250,000.
Multiple beneficiaries can be named on a POD account. However, account owners should verify their state laws regarding unequal distributions if they intend to split the assets disproportionately.
The POD designation takes precedence over a will; if a POD has a different beneficiary than the account holder’s will, the POD designation will prevail.
Drawbacks of a POD Account
The primary drawback of POD accounts is the inability to name alternate beneficiaries. If the primary beneficiary predeceases the account holder, the account assets revert to the estate, subjected to a will. Naming multiple beneficiaries can help mitigate this risk.
In some cases, settling the account for tax and debt purposes might complicate the process for executors. Dividing complex financial instruments among multiple beneficiaries can also require negotiation.
FAQ about Payable on Death (POD) Accounts
What is the purpose of a POD account?
The primary benefit is to avoid probate costs and delays, ensuring beneficiaries receive assets quickly.
How do you set up a POD account?
Setting up a POD account is a straightforward process. Complete a beneficiary designation form at your bank or credit union detailing the full name, address, and Social Security number of each beneficiary.
The Bottom Line
Setting up a POD account for all your bank accounts can save your beneficiaries the cost and delays of probate proceedings. It’s a vital part of smart estate planning to ensure your assets are transferred efficiently according to your wishes.
Related Terms: Probate, Beneficiaries, Trusts, Certificate of Deposit, Community Property.
References
- Federal Deposit Insurance Corp. “Your Insured Deposits”.
- U.S. Securities and Exchange Commission, via Internet Archive. “Transfer on Death (TOD) Registration”.
