Beneficiary Designation: Payable on Death

Payable on death deplicted with piggy bank offeringA Payable on Death (PoD) designation can be used to transfer the balance of a bank or credit union account or certificate of deposit to a beneficiary at the account holder’s death. A PoD designation is added to an account using a signature card or similar form provided by the financial institution. As long as you are alive, the person named as the beneficiary has not rights to or interest in the account. The designated beneficiary does not have access to the funds until the account holder dies.

The primary advantage of PoD designations is that they are very simply to establish and use. A PoD can be added to a bank account free of charge. The designated person will be able to access the account almost immediately after your death, potentially providing much needed liquidity for your funeral or other final expenses. The beneficiary will not need the potentially expensive assistance of an attorney to access the funds.

Like other beneficiary designations, PoDs have a number of disadvantages. A PoD designation will override a contrary instruction in your will or trust. Some financial institutions allow just one PoD beneficiary to be named. If multiple beneficiaries are allowed and named, account will be paid to survivors of those listed only, which may unintentionally disinherit grandchildren. A PoD cannot be used if the intended beneficiary is a minor. As noted above, PoDs are limited to bank accounts and certificates of deposit, so they cannot be used to distribute all of your property outside of probate. PoDs can complicate the administration of your estate if your personal representative or successor trustee is not the beneficiary and does not have sufficient funds available from other sources. Finally, the designated beneficiary cannot access the account for your benefit, if you become incapacitated.

PoDs also result in the beneficiary receiving the funds all at once, shortly after your death. They do not allow you to place any restrictions on the inheritance of the account and should only be used when your asset distribution plan is simple and direct. The designated beneficiary will be able to immediately use the funds after your passing for any purpose. If you wanted the funds used for a particular purpose, like education, or paid out over an extended period of time, or not paid until beneficiary reaches a certain age, then a PoD designation is not the proper probate avoidance method to use. A revocable trust would generally be a better choice if you want to include these types of distribution restrictions in your estate planning, while avoiding probate.

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