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Are Payable-On-Death Accounts Right For You?

Most people want to avoid their estate going through probate because their family will receive the inheritance faster, privately, and at a lower cost.  A payable-on-death account is a common way to keep bank and investment accounts out of probate.

But is a payable-on-death account an appropriate solution for your needs?

POD Accounts: The Nuts and Bolts

A payable-on-death designation can be set up for savings, checking, certificates of deposit, U.S. savings bonds, and investment accounts.

Upon the death of the account holder, the funds in the account pass directly to the named beneficiary.

Setting up a payable-on-death account is usually very easy.

Typically, there’s a form you have to complete and sign to select your beneficiary or beneficiaries. Additionally, you can change beneficiaries whenever you like or name several beneficiaries (allowing them to split the money).

After the death of thepayable-on-death account holder, the beneficiary can claim the money in a fairly simple process. Often, the beneficiary will need to show ID, provide a copy of the death certificate, and complete some forms provided by the financial institution.

Drawbacks of Payable-On-Death Accounts

So, a payable-on-death-account sounds great because they are easy, right?

But, there can be significant problems using this as the primary tool in your estate plan

What if a beneficiary predeceases you?

If you do not name new ones before you die, then your estate is back to probate. And negating the primary advantage of establishing the payable-on-death account in the first place.

What if the beneficiary is in the middle of a bankruptcy, divorce, or lawsuit?

Because a payable-on-death account transfers the money to the beneficiary without any protection, your beneficiary may lose his or her entire inheritance simply because the death of thepayable-on-death account owner occurred at the “wrong” time.

What if you are in a car crash and rendered legally incapacitated and unable to make decisions?

The named beneficiary cannot access funds to provide for your needs. payable-on-death accounts only function at death. They provide no protection in the event of your incapacitation.

A Better Solution Than a Payable-On-Death Account – Trusts

Establish a revocable trust to hold your accounts.

Just like a payable-on-death account, a funded trust avoids probate and is private.

But, unlike a payable-on-death account, it can incorporate alternate beneficiaries, so your assets avoid court even if someone predeceases you.

You can also provide long-term asset protection for your beneficiaries, protecting them against lawsuits, judgments, divorce, and bankruptcy courts.

If you become incapacitated due to an accident or illness, the successor trustee can use the assets in your trust to pay for your care.

Trusts provide all the benefits and peace of mind of a payable-on-death account without any of the downsides.

Estate Planning Tools are Context Dependent

Rather than pick tools out of a hat, you first need clarity on the big picture.

  • What are your goals and priorities?
  • What challenges do you face now-or do you anticipate confronting?
  • Whom do you want to protect?
  • What kind of legacy do you hope to leave?

We can organize your thinking and help you select appropriate planning tools from the arsenal.

Want to discuss payable-on-death accounts, trusts, or just your future in general?