Payable-on-Death (POD) Accounts: Do You Need It?

What Is Payable on Death (POD)?

A payable on death account is a type of bank account that will transfer to the person designated automatically after the account owner dies. Checking, savings, and certificate of deposit accounts can be POD.

The account owner is the only person with access to and control over the account during their lifetime. Naming someone your beneficiary on a Payable-on-Death account does not give them any right to the funds while you are alive.

POD accounts are passed directly to your beneficiary and supersede instructions in your will.

You can make the same sort of arrangement with non-qualified brokerage accounts, but it is called a TOD for “transfer on death” when it is a brokerage account. Qualified accounts, such as IRAs, allow you to name a beneficiary, including contingent beneficiaries in case the primary beneficiary predeceases you, which is different from a payable on death or transfer on death account.

What are the Benefits of Payable-on-Death Accounts?

Ease and simplicity are two nice aspects of a POD account. At any time, the account holder can request a payable on death form from their bank and name a beneficiary for the account. If they later change their mind, they can request a new payable on death form and name a new beneficiary to receive the account upon their death.

The funds bypass probate, they do not have to be inventoried by a probate special administrator in Nevada. They avoid probate fees, public disclosure, and delays.

You can transfer as much or as little money as you’d like with a POD account. Whatever amount is in the account is what transfers to the person you named.

After your death, your beneficiary has quick and easy access to the funds. They will need a certified copy of the account holder’s death certificate and ID that shows they are the named beneficiary to collect the funds.

Although POD accounts usually do not allow you to name contingent beneficiaries, you can usually name as many primary beneficiaries as you would like.

What are the Disadvantages of Payable-on-Death Accounts?

There are a number of potential downfalls to using payable on death accounts as part of your estate planning process.
One is that you may forget that you set it up that way because making an account a POD is so easy. You may leave a former spouse on an account without realizing they will inherit.

If you generally only keep a small amount of money in the account but temporarily put a large part of your estate into the account and happen to die before you transfer it back out, the risk of your assets being distributed in a manner that is inconsistent with your intentions is high.

For example, someone who decided to downsize their house might temporarily put the proceeds from the sale of the larger home into their checking or savings account until they close on their new, smaller home. This could result in a significant difference in how the estate is divided among the heirs.

If all the accounts are POD, it can leave the estate strapped for cash to pay ongoing expenses until the estate is settled. This may result in the executor or administrator having to request the beneficiaries of POD accounts return some of the cash to the estate.

PODs are sometimes called a poor man’s trust or an informal trust. An actual living trust makes it easier to leave instructions for all your assets in one place which makes it less likely that an oversight will accidentally disinherit or enrich someone beyond the amount you intended.

When you use POD accounts, changing your will won’t affect the POD accounts. This can make it more difficult to change all your accounts after one of your beneficiaries dies.
Your estate planning attorney might be unaware of your POD designations, so it is easier to unintentionally disinherit someone you want to bequeath assets to when you pass on.

PODs generally do not allow you to name an alternate beneficiary to receive the proceeds if the person you elect predeceases you.
Other simple estate planning devices can protect your beneficiary’s inheritance from being claimed by creditors or in a divorce. Situations, where one spouse waits for the other to receive an inheritance before they initiate divorce, are not uncommon.

If you have a child or spouse with special needs who is receiving government assistance, receipt of the POD funds may cause them to be disqualified for important benefits, including Medicaid.

If your POD beneficiary is a minor, they will need to have a court appointed guardian to collect and manage the assets. They will also receive the proceeds on their 18th birthday unless you establish a trust that delays receipt until they are mature enough to prudently manage the funds.

Should I Hire a Lawyer?

If you have any questions about how to set up your estate planning documents, you should contact a lawyer for guidance. If you want to know if payable on death accounts are a good fit for your needs, consult a Las Vegas probate attorney for guidance.

For more than 30 years, Attorney Lee A. Drizin has practiced in the areas of estate planning, probate, trusts, guardianship and real estate matters representing clients throughout the state of Nevada.

Drizin Law is providing this information for educational purposes only. It should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. This information is based on general principles of Nevada law at the time it was created and you should be aware laws frequently change. Moreover, the laws affecting you may differ depending on the circumstances. You should consult with a qualified attorney in your own state or jurisdiction concerning your particular situation. Review of this information does not create an attorney-client relationship.