Payable on Death

Payable on Death (POD) accounts are used by many individuals so that when they pass away the account is designated to a specific individual or group of individuals.  They are used on bank accounts, brokerage accounts, retirement accounts, and/or insurance policies. 

Drawbacks of Payable on Death Accounts

Naming a beneficiary on a financial account can be useful from an estate planning perspective, but is dangerous in many cases. 

No alternate beneficiaries: If you have a large bank account or brokerage account and you name a child as payable on death beneficiary, and the child predeceased you, that account will normally go through the probate process at your death and be distributed by your Executor or your Administrator of the estate. 

Disinheriting beneficiary's descendants: At the same time, this process inadvertently disinherits the child’s children, if your intent was to have that account or those assets pass to your beneficiary’s descendants. 

Jeopardize eligibility for public benefits: Another problem arises if you have named an individual who may be disabled and receiving public benefits.  When the account passes to the child outright their public benefits are in jeopardy. 

Benefits of Payable on Death Accounts

However, the use of payable on death accounts on joint accounts can be useful in helping to keep your assets out of probate.

For instance, when one individual passes away and the account passes to the survivor and the survivor dies either in the same accident or after the first death with no one named on the POD account, the assets must go through probate to be managed by the Executor or Administrator of the last to die. 

This is why, with my trust clients, I usually advise them to name the trust as payable on death beneficiary.  Thus, if they are in a common disaster or accident, the assets can be collected by the trustee without having to go through the court system. 

Should I Add an Individual or Trust as a Beneficiary?

Designating individuals as beneficiaries on the account can seem to be an easy cost-effective way to transfer assets at death.  However, doing so can defeat your intent, especially if the beneficiary has pre-deceased you, is incapacitated or disabled. 

In lieu of using POD accounts, I recommend the use of trusts for estate planning purposes. The Trustee will manage the account in the event of death or disability.   If you want to have an individual bank account outside of a trust, it should name the trust as the beneficiary, so that at your death your trustee can collect those funds and close out that account without those assets passing through court-supervised probate system. 

To learn more about estate and elder law planning, contact our team today for a free consultation