Payable on Death accounts, or “POD accounts” for short, have become popular for avoiding probate. I have heard some people refer to POD accounts as the “poor-man’s” estate plan; I do not agree.
A POD account is a type of bank account authorized by state law which allows the account owner to designate one or more beneficiaries to receive the funds left in the account when the owner dies.
A POD account allows the owner to do what he or she pleases with the funds held in the account during the owner’s lifetime, including spending it all and changing the beneficiaries of the account. After the owner dies, if anything is left in the POD account, the beneficiaries chosen by the owner will be able to withdraw the remaining funds without the need for probating the account by presenting an original death certificate of the owner and other such documents that each bank may require.
POD accounts sound great, don’t they? In general, POD accounts are easy to set up and make sense for many people. A handful of states now even recognize POD deeds for real estate and POD designations for automobiles.
Nonetheless, POD accounts may lead those who create them to believe that they have an “estate plan” and no additional steps will need to be taken. This may or may not be true. Below are a few examples of what can, and often does, go wrong with POD accounts:
These are just a few examples of why POD accounts should not be a primary asset transfer mechanism in your estate plan. You need to have a will, a revocable living trust, a power of attorney, and a health care directive in place to insure that you and your property are protected in case you become mentally incapacitated and to make sure that your property goes where you want it to go after you die.
If you have POD account and are unsure if they meet your need, please contact us to set up a free consultation to review your options.
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