What Is a Payable on Death (POD) Account?
- Learn about the benefits and drawbacks of payable on death accounts, which transmit assets to one's beneficiaries without going through the probate process.
Designating accounts as payable on death (POD) is a common and fairly simple way to move assets to a beneficiary upon the death of a bank account holder.
A POD account is just a regular bank account. However, the bank has been informed in writing that upon the account holder's death, the funds in the account can be transferred to a beneficiary. When someone with a POD account dies, a beneficiary can claim the funds as soon as they're able to provide the bank with a certified death certificate.
Benefits of a POD Account
In addition to not being subject to probate court, there are a number of advantages for seniors who wish to designate some or all of their bank accounts as POD accounts.
- Simple asset transfer: As opposed to assets named in a will, funds in a POD account are not subject to a complicated probate process. As a result, the funds move quickly to a beneficiary and do not go through an executor.
- Cost: Unlike setting up an estate with elaborate trusts and attorney fees, it is free to designate a bank account as a POD account.
- Ease of setup: Establishing a bank account as a POD account simply requires you to fill the appropriate form from a bank or credit union, a process which can often be done online. The only information needed is the beneficiary's name, address and Social Security Number.
- Ease of modification: It's also easy to modify or revoke POD status without involving an estate planner or the rewriting and re-certifying of a will.
- Lack of beneficiary access to funds before death: Unlike with a joint bank account — which seniors often set up in order to have a spouse or family member disburse funds on their behalf — the beneficiary of a POD account has zero access to funds before the account holder's death. This also means that if a designated beneficiary owes money to creditors, the funds in the POD account are not subject to the beneficiary's creditors (something that is a risk with a joint bank account).
Drawbacks of a POD Account
- Potential lack of funds for the estate: Settling an estate requires cash to cover taxes, loans, expenses and the debts of the deceased, and POD accounts cannot be used to cover these costs. Designating too many accounts as POD can create complications for beneficiaries, who may need to spend their own money to cover some of these costs if enough money has not been left to settle the estate.
- No option for alternate beneficiaries: If someone named as the beneficiary predeceases the person who designated them, then the funds in the account default to whatever designation was made in the will.
- Inflexibility as to how funds are apportioned: In most states, two or more beneficiaries of a POD account must split the funds evenly. Some states don't allow multiple beneficiaries in the first place.
What Types of Accounts Are Eligible for POD?
The types of accounts that can be designated as POD vary from state to state. In general, certificate of deposit, savings, checking and savings bond accounts are eligible.
Does a POD Account Override a Will?
POD accounts are treated separately from estate administration, so the funds in them are not distributed as part of the administration of a will.
Here's an example of what that could mean. Mary's will stipulates that all of her assets are to be divided between her two adult sons, Bob and Jerry. There is $1,000 in her checking account. There is also $5,000 in Mary's savings account, but this account is a POD account with Bob as the only beneficiary. When Mary dies, the brothers would split the $1,000 from the checking account. But Bob alone would receive the entire $5,000 savings account, because even though the will says that the brothers split all assets, the $5,000 is a POD account and is not subject to what the will says.