Estate planning involves making arrangements for future asset transfers. There are a number of different ways that you can go about it. The creation of a POD account is one possibility.
Payable on Death Accounts
The acronym POD stands for “payable on death” in this context. These accounts are alternately called transfer on death accounts (TOD accounts).
Payable on death accounts can be opened at banking institutions of various kinds along with many brokerages. When you open a payable on death account, you name a beneficiary (or beneficiaries). After you die, the beneficiary becomes the owner of the assets that remain in the account.
You should understand a bit about probate when you are planning your estate. Probate is the legal process of estate administration. Your estate must be probated before the heirs receive their inheritances unless you take steps to arrange for asset transfers outside of probate.
Suppose you had a bank account that was not a payable on death account. If you have a will splitting your property among three children, the children will not receive their inheritances until the estate has been probated.
At first, the money that is left in the bank account would be probate property. Your children would not receive their respective shares of the money until the estate was probated and closed by the court.
On the other hand, if the children were beneficiaries of a payable on death account, the probate process would not be a factor. They would assume ownership of the funds in a more timely manner.
On the surface a payable on death account can seem like a great solution. However, there are some drawbacks that you should consider.
A well constructed estate plan can satisfy multiple objectives. Some people want to protect assets. There are those who want to mitigate estate tax exposure.
You may want to provide for a family member who has a disability without impacting government benefits. Perhaps you have a spendthrift heir, and you are concerned about this individual burning through his or her inheritance too quickly.
If you implement the proper estate planning techniques you can address all of these concerns and others. However, a payable on death account will not be the answer if you have objectives above and beyond a simple and direct transfer of unprotected assets.
More Comprehensive Solutions
Though they have limitations, a payable on death account could be a useful part of a broader estate plan. The best course of action would be to discuss all of your options in detail with a licensed estate planning attorney.
If you are interested in doing so, don’t hesitate to contact our firm to request a free consultation.