What Is a Payable on Death (POD) Account?

A Payable on Death (POD) account offers a straightforward method for individuals to designate a beneficiary who will directly receive the account’s funds upon the owner’s passing. This simplifies asset transfer, bypassing the often time-consuming probate process. It ensures beneficiaries gain access to funds efficiently and privately.

Understanding Payable on Death Designations

A Payable on Death designation allows an account owner to retain control over their funds during their lifetime, while specifying who inherits the assets after their death. Its primary function is to bypass probate, the legal process of validating a will and distributing assets. This allows for a quicker transfer of funds to the named beneficiary. During the account owner’s lifetime, beneficiaries have no access to or rights over the money in the account.

Common types of financial accounts that can typically have a POD designation include checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs). Some investment accounts, such as brokerage accounts, and individual retirement accounts (IRAs) may also qualify for a similar “Transfer on Death” (TOD) designation.

Setting Up a Payable on Death Account

Establishing a Payable on Death designation is a simple process that begins by contacting your financial institution. You can initiate this by visiting a branch, contacting them by phone, or through online portals to request beneficiary designation forms. These forms require information about the beneficiary, including their full legal name, date of birth, and often their Social Security number or tax identification number.

It is prudent to name both primary and contingent beneficiaries. A primary beneficiary is the first person designated to receive the funds; a contingent beneficiary is a backup who inherits the assets if the primary beneficiary predeceases the account owner. While naming primary beneficiaries is standard, the ability to name contingent beneficiaries for bank accounts can vary by financial institution. You can designate multiple beneficiaries for a single account, and funds are generally distributed equally among them, though some institutions may allow for specific percentages. The account owner retains the ability to change or revoke these beneficiaries at any time during their lifetime.

The Payout Process for Beneficiaries

After the account owner’s death, the named beneficiary must take steps to claim funds from a Payable on Death account. The primary documentation required by financial institutions is a certified copy of the account holder’s death certificate. The beneficiary will also need to present valid personal identification to the bank or credit union.

Once these documents are provided, the financial institution will have the beneficiary complete transfer forms. Funds are then transferred directly to the named beneficiary, often without probate court involvement. While the transfer process is generally straightforward, some states may have a short waiting period before funds can be claimed. Regarding tax implications, beneficiaries generally do not owe income tax on the funds received from a POD account. However, the value of the POD account is included in the deceased’s gross estate for federal estate tax purposes, and some states may impose their own estate or inheritance taxes, depending on the estate’s size and the beneficiary’s relationship to the deceased.