What Does Payable on Death Mean for Your Accounts?

Payable on Death (POD) designations offer a straightforward method for transferring financial assets directly to chosen individuals upon an account holder’s passing. These designations are a common tool in personal financial planning, providing a clear path for funds to reach beneficiaries.

What Payable on Death Means

A Payable on Death designation represents a contractual agreement between an individual and a financial institution. This agreement allows the account holder to name one or more beneficiaries who will directly receive the funds held within the account upon the account holder’s death. The primary purpose of establishing a POD account is to facilitate the transfer of funds to named beneficiaries without requiring formal probate court proceedings.

Common types of financial accounts that offer POD designations include checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts. Some brokerage or mutual fund accounts may also allow for similar designations, often referred to as Transfer on Death (TOD). Account holders can designate individuals, multiple beneficiaries, or entities like charities or trusts, and specify how shares are divided. The account holder retains complete control over the funds during their lifetime, including the ability to withdraw money or change beneficiaries at any time.

Creating a Payable on Death Designation

Establishing a Payable on Death designation involves contacting the financial institution where the account is held. This process entails obtaining and accurately completing specific beneficiary designation forms provided by the institution. These forms commonly require basic identifying information for the intended beneficiary(ies). The account holder’s signature is required to validate the designation.

After submitting the forms, it is advisable to confirm with the financial institution that the POD designation has been correctly recorded and is active on the account. Account holders maintain the flexibility to change or revoke a POD designation at any point during their lifetime. This is accomplished by submitting new forms to the financial institution, which then updates the beneficiary information or removes the designation entirely.

Claiming Funds as a Beneficiary

Once the account holder passes away, the process for a named beneficiary to claim funds from a Payable on Death account is straightforward. The beneficiary needs to contact the financial institution directly. They will be required to present a certified copy of the account holder’s death certificate and their own valid identification.

Upon verification, the financial institution will transfer the funds directly to the beneficiary. This transfer can occur through methods such as direct deposit into an existing account, the opening of a new account in the beneficiary’s name, or the issuance of a check. This direct transfer mechanism means that, in most instances, beneficiaries can access the funds relatively quickly, avoiding the delays often associated with traditional probate court proceedings.

How Payable on Death Affects Estate Planning

A Payable on Death designation can significantly impact an individual’s broader estate plan. A POD designation overrides any conflicting instructions found in a will regarding the specific account it covers. For example, if a will specifies that all assets go to one person, but a POD account names a different individual, the POD designation will control the distribution of that particular account.

Coordinating POD designations with an overall estate plan is important to ensure that the account holder’s wishes are fully met and to prevent unintended outcomes or potential conflicts among heirs. While POD accounts effectively bypass probate for the designated asset, they do not offer the same level of control or flexibility as certain types of trusts. For instance, a trust can provide detailed instructions for asset distribution over time or offer specific protections against creditors for beneficiaries, which POD accounts typically do not. Regular review of POD designations is advisable, particularly after significant life events such as marriage, divorce, the birth of children, or the death of a named beneficiary, to ensure alignment with current financial and familial circumstances. Funds in a POD account can also be subject to claims from the account owner’s creditors if the estate does not have sufficient other assets to cover debts.