Do Payable on Death (POD) Accounts Go Through Probate?

Do Payable on Death (POD) Accounts Go Through Probate?

Posted by on Apr 18, 2022

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Leaving instructions on what to do with your assets in case you pass can help relieve some of the burdens of managing financial affairs on surviving family members. There are a number of ways to do this. One is called payable on death or POD. This is basically a beneficiary for the account. But does that stop the account from having to go through probate?

Payable on Death vs. Beneficiary

Is there a difference between a POD and a beneficiary? There can be depending on the legal language being used for the account. For most accounts, a POD is a beneficiary. However, these listings go by many terms. 

For example, Bank of America says, “POD Beneficiaries may also be labeled as ‘In Trust For’ (ITF), ‘As Trustee For’ (ATF), Transfer on Death (TOD) or Totten Trust.” At least for Bank of America, a POD and beneficiary are the same.

Whether that is always the case will depend on the particular institution.

Listing a Beneficiary Doesn't Always Avoid Probate

Certainly, listing a beneficiary is better than not listing one. If a beneficiary is listed, there's a smaller chance that assets in the account will end up in probate. But if there are issues with the beneficiary, that can derail the whole thing. So what kind of issues might a beneficiary have that can land an account in probate or lead to other undesirable outcomes?

Here are just a few:

  • The only listed beneficiary dies.
  • There can be a disagreement with the beneficiary where a judgment may be involved.
  • A trust lists someone else as the beneficiary of the asset.
  • A divorce decree is involved with the beneficiary.
  • The beneficiary is disabled. In this case, any money they receive may disqualify them from disability benefits.

As the years pass, things can change. People don't always keep their records up to date. A beneficiary may pass away, but the account owner may forget to update their account with a new beneficiary.

Note that a bank doesn't have a responsibility to keep beneficiary information up to date. This means beneficiary mistakes can happen that are outside of the account owner's control. For example, beneficiary information can get lost in a merger or acquisition, software upgrade, or even an account upgrade. The bank is not responsible for the lost beneficiary information. By the time it's found out, the beneficiary designation can be gone.

Keeping Beneficiary Information up to Date

The best way to ensure that an account avoids probate is to review beneficiary information periodically. Additionally, review it if there are any significant changes at the bank, such as a name change, merger, or acquisition. It doesn't cost anything to update beneficiary information on an asset account.

Remember, if an asset account doesn’t have a beneficiary, it is going to probate. If your goal is to avoid probate, maintaining beneficiary information can help.

A more efficient method of avoiding probate is to create a living trust. A living trust does not require going through the probate process. Trusts cost more, but they are better organized than a scattering of beneficiaries across many accounts. Some of which may be unknown to surviving family members.

While the FDIC limit on bank savings accounts is $250,000, adding beneficiaries to a revocable trust can increase this amount to $1.25 million. That’s $250,000 for each beneficiary up to five.

Adding a POD or beneficiary can keep an asset account out of probate. But it’s necessary to maintain beneficiaries. Setting it and forgetting it doesn’t really work in this case. The extra effort in periodically checking beneficiary information does pay off.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Examples shown are hypothetical and for illustrative purposes only.

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