What Does the Term Payable on Death Mean in Estate Planning?

One goal of estate planning is to allow assets to transfer, without the possibility of infighting amongst your loved ones. The other goal is to try to pass assets with as little legal involvement as possible. That is, without courts, probate, and lawyers.

There are a number of ways that this can be done, but one such way is with what is known as a payable on death account (POD).

What is a Payable on Death Account and What are the Benefits?

As the name implies, a POD account is an account, held by or in a financial institution, that will automatically transfer to whoever you designate, upon your death. There is a form that you will sign with your financial institution designating who will receive whatever is in your accounts.

One benefit to using a payable-on-death account is the ease with which these accounts are created. The forms are given to you by the bank, and you sign them. You can even transfer funds that you have in an existing account, into the POD account.

There is also no limit to how much money can be left in a POD account, and there is often no cost at all, to make a designation. However, you do need to go in person to the bank and use their forms. Simply designating an account as POD in a will or other state document with your Chicago estate planning attorney, will not suffice.

Getting the Funds

The beneficiary you choose does not need to go through any complex processes to access the money when you do pass. Normally, to transfer the funds, the bank will just want the beneficiary’s proof of identification, and proof of death of the owner of the account.

The account and the funds in it, are automatically retitled in your beneficiary’s name when you pass. This also allows a POD to avoid the probate process in court-the assets are never technically part of the estate, and thus they aren’t included in the will.

Some Payable on Death Drawbacks

Like anything else, there can be some limitations when using a POD account. For example, you can’t name a “backup” beneficiary. So if your POD is left to relative X, and relative X passes before you do, and then you pass, the money in the POD will become part of your estate, and distributed like any other of your assets. Your Chicago estate planning lawyer can help you make sure your will “matches” your POD account so the designated is always clear.

Additionally, if for some reason the beneficiary cannot be found, for the estate or your other relatives to access the money, there may be a more involved legal process.

Note that a transfer on a death account, while it works similarly to a POD, refers primarily to stocks and bonds.

In the event of a conflict, a POD account will usually take precedence over your will or other estate documents. That means you should be certain that your POD designation is updated, in the event you update your will.

Call the Chicago estate planning attorneys at Orlowsky & Wilson, Ltd at 847-325-5559 to learn more about the tools you can use when creating an estate plan that works for you.

Updated as of July 2019
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