What Is a Payable on Death Account?

This is an article from the Law Offices of Michael Robinson (https://www.mrobinsonlaw.com/) in Naples, New York, that we thought others may find helpful.

There are many different ways to facilitate future asset transfers and some of them are more effective than others. Before you make any decisions, you would do well to discuss your options with a licensed estate planning attorney.

People sometimes make assumptions without enough information, and they accept incomplete solutions. With this in mind, let’s look at payable on death accounts.

POD or TOD Accounts

Payable on death accounts are alternately referred to as transfer on death accounts. You can open these accounts at banks and many brokerages. When you open a payable on death account, you name a beneficiary. After you pass away, the beneficiary inherits the assets that remain in the payable on death account.

The process of probate is a factor if you leave someone an inheritance in your last will. The will must be admitted to probate, and the heir would not receive his or her inheritance until after the process has run its course. With a payable on death account, the transfer of ownership would take place outside of probate.

When you first hear about payable on death accounts you may be enamored, but there are some potential drawbacks to take into consideration.

Incomplete Solution

A payable on death account is not a complete estate planning solution. It is unlikely that all of your objectives can be accomplished through the utilization of a POD account.

Firstly, you may want to leave different sums of money to multiple different heirs. You may be able to add multiple beneficiaries depending on the rules of the institution in question. However, the institution may require you to allow for equal distributions of assets that remain in the account. In other words, you can’t have it your way.

There is also the matter of incapacity. A significant percentage of senior citizens become incapacitated and unable to handle their own affairs late in their lives. The beneficiary cannot assume ownership of the funds until after you pass away. There is no way to account for the possibility of incapacity when you create a payable on death account.

There are no tax advantages to be gained when you use one of these accounts and payable on death accounts do not provide asset protection.

There is also the matter of the death of a beneficiary. If one beneficiary dies, who gets that share? The other beneficiaries may want to split it, but the descendents of the deceased beneficiary may have other ideas.