What Is a Payable on Death (POD) Account in Banking?

A Payable on Death (POD) account is a type of bank account that allows the account holder to designate a beneficiary who will automatically receive the funds upon the account holder’s death. This designation ensures the money transfers directly to the named individual or entity, bypassing the probate process.

POD accounts are a straightforward tool for estate planning, offering a direct path for beneficiaries to access funds. The account holder maintains full control over the funds during their lifetime.

Establishing a POD Account

Setting up a Payable on Death account involves interacting with your financial institution. Most common account types, such as checking accounts, savings accounts, money market accounts, and Certificates of Deposit (CDs), are eligible for a POD designation. Some investment accounts and Individual Retirement Accounts (IRAs) may also qualify.

To designate a beneficiary, the account holder completes a specific form provided by the bank. This form requires the full legal name of the designated beneficiary and identifying information. Financial institutions allow for the naming of multiple beneficiaries, who receive equal shares of the account’s assets unless otherwise specified.

Account holders can also name contingent beneficiaries, who inherit the funds if the primary beneficiary predeceases the account owner. The account owner retains complete control over the funds, including the ability to spend, close the account, or change beneficiaries at any time without requiring the beneficiary’s consent.

Claiming Funds as a Beneficiary

Upon the death of the account holder, the named beneficiary can claim the funds. The financial institution requires a certified copy of the account holder’s death certificate and the beneficiary’s valid government-issued photo identification. This documentation verifies the death of the account owner and the identity of the person claiming the funds.

The beneficiary should contact the bank to understand their specific procedures. Once the necessary documents are presented and verified, the bank will release the funds. Options for receiving the funds include opening a new account, receiving a cashier’s check, or transferring funds to an existing account.

If multiple beneficiaries are named on the account, the funds are distributed equally among them, unless the account holder specified different percentages. If a beneficiary predeceases the account holder and no contingent beneficiary was named, the funds may become part of the deceased account holder’s estate and subject to probate.

POD Accounts and Estate Planning

Payable on Death accounts serve as a simple component within a broader estate plan. Their primary advantage lies in their ability to bypass the probate process, allowing for a quicker and more direct transfer of assets to beneficiaries. This circumvention of probate can save beneficiaries considerable time and avoid legal fees.

While POD accounts avoid probate, they do not shield assets from the deceased’s outstanding debts or tax liabilities. Creditors may still have claims against the estate. A POD designation takes precedence over instructions outlined in a will for the specific account. The POD beneficiary will still receive the funds.

The revocable nature of POD designations means the account holder can modify or cancel the beneficiary at any point during their lifetime. While beneficial for straightforward asset transfers, POD accounts may not be suitable for complex estate situations that require specific conditions for distribution, such as staggered payouts or provisions for beneficiaries with special needs, which are handled more effectively through trusts.