WHAT IS A PAYABLE ON DEATH, OR P.O.D. ACCOUNT AND WHY DOES IT AVOID PROBATE?When should you use it? When is it not wise to use? A Pay-on-Death account, sometimes known as Payable on Death or Transfer on Death and usually referred to as P.O.D. or T.O.D., means that an account that is owned by a person passes to a designated person or persons after the death of the owner based on a P.O.D. payee designation form that is filed with the financial institution. P.O.D. accounts are usually checking or savings accounts, while T.O.D. accounts are more likely to be stock or bond accounts. These types of accounts avoid probate because the accounts are designated to pass to specific persons, called P.O.D. beneficiaries or payees. The advantage of a P.O.D. account is that the money in the accounts can be available to the payees to take care of expenses very soon after death without having to go to Probate court to get a personal representative appointed. As discussed in our newsletter of *****, it can take a few months to get the personal representative appointed by the probate court, and then it can take months after that before the assets can be distributed. With a P.O.D. account, after the death of the owner, the payee or beneficiary needs to present a death certificate along with an approved form of identification in order to collect the funds. Sometimes joint accounts can have a P.O.D. designation. If the account was owned by more than one account holder, the payee will need to present the death certificates of all of the owners in order to collect the funds. WHEN SHOULD YOU USE A P.O.D. OR T.O.D. ACCOUNT AND WHAT ARE SOME OF THE PROBLEMS WITH THOSE TYPES OF ACCOUNTS?It is important to coordinate P.O.D. payee designations to work with the overall estate plan so that the P.O.D. does not defeat the other terms of the estate plan. A will or trust does cannot change a P.O.D. payee designation, so the terms of the estate plan may be in conflict with a P.O.D. account. For instance, if you name one child as the P.O.D. payee, that account will be distributed solely to the child named on the designation form regardless of whether your will states that all accounts should be distributed equally to all of your children. The P.O.D. beneficiary does not have to share the account with any of the other beneficiaries regardless of the terms of your will or trust. Another concern with P.O.D. accounts is that if one of the payees is disabled or in need of special protection to keep public benefits, the P.O.D. account payment may cause the beneficiary to lose public benefits. In addition, a P.O.D. account does not defeat estate creditors, so P.O.D. beneficiaries may still have to pay the creditors of your estate out of the P.O.D. account distribution. If you have minor children, they can’t be the beneficiary of a P.O.D. account. P.O.D. accounts may be most appropriate for smaller accounts so that the payee can use the proceeds to pay for funeral and burial expenses, or to have money available to pay the mortgage or car payment so the home or car is not lost for failure to make payments on the loan. They may also be appropriate in cases where the account owner has only one beneficiary, and all of the proceeds would go to that beneficiary under the terms of a will. The P.O.D. account beneficiary does not have the ability to use the proceeds of the account while you are alive, so you will still need to have a financial power of attorney or a trustee who can access the account while you are alive if you need help managing your finances. |