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Home » What Is a Payable on Death Account?

What Is a Payable on Death Account?

December 26, 2013Estate Planning, Probate

You may hear about the subject of probate avoidance when you are looking around for information about estate planning.  Some probate avoidance strategies are more effective than others.  With this in mind, let’s look at payable on death accounts.

POD and TOD Accounts

Payable on death accounts are often referred to as POD accounts.  You may also see the term TOD account.  This stands for a transfer on death account.  These are essentially two different names for the same type of account.

These accounts are offered by many brokerages, and they are also available at banks where you can start a savings account or a checking account.  With the payable on death option you can add a beneficiary to the account.  After you die, the beneficiary assumes ownership of the assets that are left in the account.

The transfer of the assets would take place in a timely manner outside of the process of probate.  If there was no beneficiary, the assets would potentially become probate property.  They would not be distributed to the heirs until the estate was probated.

In addition to the probate avoidance benefit, you should understand the fact that the beneficiary does not have access to the assets while you are still living.  You are not suddenly sharing the resources with the beneficiary.

Problems With Payable on Death Accounts

We have briefly highlighted the benefits that go along with the creation of these accounts.  Now let’s look at a few of the drawbacks.

We mentioned above that your beneficiary does not have access to the funds while you are living. This can sound like a purely positive thing.  However, what happens if you become incapacitated and unable to handle your own financial affairs?  The beneficiary would not have access, and you may not understand how to access the funds yourself.

Another thing to take into consideration would be the fact that these accounts are going to limit your options considerably.  In many instances you would be required to allow for an equal split of assets remaining in the account if you have multiple beneficiaries.  You may not want to split up these assets equally.

In addition, let’s say that you want to keep things simple.  You name a single beneficiary to a payable on death account.  You trust this person to distribute the assets among multiple family members according to your verbal instructions after you die.

Once you pass away, the assets that are left in the account will become the sole property of the beneficiary.  There is nothing that would force this beneficiary to distribute the assets according to your verbal instructions.

Why Accept Limitations?

There is no reason to accept the limitations that go along with payable on death accounts.  You can make sure that your wishes are carried out precisely by executing a proper estate plan with the assistance of a licensed estate planning attorney.

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Paul A. Kraft, Estate Planning Attorney
Paul A. Kraft, Estate Planning Attorney
Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law firms in Indiana in the area of estate planning as well as business and tax planning.

Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
Paul A. Kraft, Estate Planning Attorney
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