What Does Payable on Death Mean?

Posted by Amr Tenney on Sep 24, 2022

Estate planning can be a difficult and complicated process, especially if you have amassed significant financial assets and have multiple beneficiaries. 

Fortunately, there’s an easy way to ensure the transfer of monetary assets held in your name at banks or credit unions to your beneficiaries when you die. This process also works for any certificates of deposit, savings bonds, and money market accounts you may have. 

Below we’ll take a look at what the term “payable on death” means and how you can utilize this option while planning your estate. 

Why Create Payable on Death Accounts? 

A payable on death (POD) beneficiary can be anyone of your choosing, as well as a non-profit, trust, organization, or company, who will receive the balance of funds held in your name at a financial institution upon your death. Other common designations for this type of beneficiary arrangement include: 

  • Totten Trust  
  • In Trust For (ITF) 
  • As Trustee For (ATF) 

When you set up this kind of arrangement with your financial institutions, the money held in your bank accounts, or your bonds and CDs, is immediately transferred to your named beneficiaries when you die. It’s very similar to Transfer on Death (TOD) arrangements, but those are used for mutual funds, stocks, and similar types of investment assets. 

Simplicity is often the main benefit for people who set up POD arrangements. Your money won’t be tied up in probate with the rest of your estate; instead, it immediately goes to the named beneficiaries. It doesn’t cost anything to convert a regular banking account into a POD account, either. All you usually have to do is complete some paperwork at your financial institutions so they are aware of who is slated to inherit the funds, bonds, or certificates of deposit held in your name. 

Your designated beneficiaries will have to complete some paperwork as well. This beneficiary designation document is called a Totten trust, and it must be completed in order to convert regular accounts into POD accounts. Once the trust form is complete, the bank is authorized to transfer funds to your beneficiary when you die. 

Special Considerations 

There are a few special considerations with POD accounts you should take into consideration: 

  • Multiple beneficiaries. You can name any beneficiary you wish, or even multiple beneficiaries if you have multiple accounts or investment instruments; however, those beneficiaries cannot access the funds while you are still alive. When you pass, though, the beneficiaries become the new account holders. 
  • Outstanding debts. If you have unpaid back taxes or summary judgment claims against you, those creditors or the IRS may step in. 
  • Community property. If you live in a state that has community property laws, your spouse is entitled to one-half of the assets held in your POD accounts even if he or she is not listed as a beneficiary or account holder if the accounts were established during the marriage. 
  • No stipulations. Account holders are not bound by any agreement while the accounts are open. They are free to spend all the money held under account, cash in CDs or sell bonds, or even close the accounts if they wish. 
  • A POD trumps a will. In the event that there’s conflict between designated heirs on a POD and a will, the POD overrides the will. 

As a last point, if there are multiple account holders listed on the POD accounts, the beneficiaries can’t access any funds until both owners die. 

The Bottom Line 

Beneficiaries only need to present a government-issued ID and a certified copy of a death certificate at the financial institution in order to claim their funds. Payable on death accounts are a seamless and cost-effective way of dispersing monetary assets and avoiding probate. 

 

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. It should also not be construed as advice meeting the particular investment needs of any investor.    

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. 

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