What is a Payable on Death (POD) account?
A POD is a special type of bank account that is recognized under U.S. state law. POD accounts can be set up for checking accounts, savings accounts, money markets, and certificates of deposit as well as U.S. savings bonds. The owner(s) of such an account will fill out a beneficiary designation form and file it with the bank. This will designate one or more beneficiaries to receive the remaining money in the account upon the owners' death. Where there are multiple beneficiaries named, this form may also specify by what proportion each beneficiary will receive funds, if the owner(s) should not want them to split the amounts equally.
During the life of the owner(s), only they will have access to and control over the money held in the account. Also, the owner(s) may change the beneficiaries of the POD account at any time while he or she is still alive and competent to make such changes. The account allows for the money remaining in the account when the owner(s) die to pass directly to the beneficiaries named by the account.
Because the money passes directly, it happens outside of probate. Typically, all that the beneficiary of the account would have to do to gain control over the account is to show the bank manager an original death certificate for the owner(s). Thereafter, the money in the POD account will be paid to the beneficiary or beneficiaries named on the beneficiary designation form filed with the bank.
What if the beneficiary or beneficiaries predecease the POD owner?
Where there are multiple beneficiaries named, and one predeceases the owner, the money remaining in the account will be paid to the other beneficiaries upon the owner's death equally.
Where there is one named beneficiary that predeceases the owner, and the owner never changes the beneficiary designation thereafter, the money remaining in the POD will become part of the account owner's probate assets.
What are the Pros and Cons of a POD Account?
- Easy to Create - No Alternate Beneficiaries
- No Monetary Limitation - No Rights for the Beneficiary
- Easy to Claim the Money During the Life of the Owner
- Multiple Beneficiaries
A POD Account Must Compliment an Estate Plan, to Avoid Any Future Issues
While there are many 'pros' to a POD, they can go awry if they contradict an estate plan already in place. For instance, in the Estate of Barbara Kester, who died in 2011, leaving five children, the court had to intervene. One daughter, Glenna Kester, took possession of a POD account as a payable on death beneficiary and joint account holder with right of survivorship, and also another annuity account that she split with her two brothers, per the beneficiary designation on that account. However, the two sisters left out when straight to court. The appellate court ruled in Glenna's favor, concluding there was no undue influence and that she acted according to a proper beneficiary designation. So, it all ended according to the owner's initial wishes. But, there was confusion and court involvement in the process despite the attempt to avoid it.
As estate attorney Patrick Lannon described in an article with Forbes:
"In general, these types of accounts have to be treated with caution because clients are often very information, for example naming one child a beneficiary who is expected to further distribute the money in the account to the other beneficiaries, but there is no legal obligation to do so...Other siblings may believe that was the intention, and it may or may not have been."
Cannon went on to describe a client who opened separate POD accounts for each of her children and grandchildren, but mistakenly left one grandchild out - a mistake that was not discovered until after her death: "Even though all the beneficiaries were in agreement that it needed to be fixed, it was very awkward."
The moral of the story here is that POD Accounts can be extremely useful and helpful, but they must be executed carefully and with consideration of and coordination with an estate plan.