There are some relatively simple ways to get assets into the hands of your loved ones after you pass away. Though these methods can sound ideal on the surface, there are going to be drawbacks in most instances. With this in mind, we will look at POD accounts in this post.

Payable on Death

In this context, the acronym POD stands for payable on death. A payable on death account is an account that you can open at a brokerage or bank. When you establish the account, you name a beneficiary. After you die, the beneficiary would assume ownership of any assets that remain in the account.

These accounts are alternately referred to as transfer on death (TOD) accounts or Totten trusts.

Probate Avoidance

One of the advantages that you gain if you have a POD account is the avoidance of probate.

If you did not have a beneficiary and you named someone in your last will to assume ownership of the assets in your bank account, the heir would not receive his or her inheritance right away. The process of probate would slow things down considerably.

A will must be admitted to probate, and the heirs to the estate do not receive their inheritances until after the court has closed the estate. In most jurisdictions the probate process will take close to a year at minimum.

When you have a POD account, the transfer to the beneficiary would not be subject to the probate process, so it would take place in a more timely manner.

Drawbacks

A payable on death account may sound like a great estate planning solution, but there are some drawbacks to take into consideration. For one, you may be able to add multiple beneficiaries, but the institution may require equal distributions. This may not be consistent with your true wishes.

Plus, if you name multiple beneficiaries, the death of one of the beneficiaries can complicate things considerably. Should the other beneficiaries divide the remainder, or should the deceased beneficiary’s family get a share?

You could name a single beneficiary and tell the beneficiary to divide the assets among multiple family members after your passing. However, the beneficiary would not be legally compelled to follow these instructions.

There is no way to account for incapacity when you have a payable on death account, and they do not provide asset protection or tax efficiency.

Bottom Line

The use of POD accounts can be extremely helpful as part of an estate plan.  It is first important to understand what this designation means. Next, everyone should create a simple list of all accounts that they have, and record how they are titled and designated.  This list should be part of your estate plan.