What Does “Payable On Death” Mean in Estate Planning?

Payable on death (POD), , is an agreement between financial institution and a client that designates beneficiaries to receive all of a client’s assets. The immediate transfer of assets is triggered by the death of the client. This can be perceived as morbid, but the POD structures are important to understand.

Understanding “Payable On Death” And How It Works

A POD is often much simpler to create and maintain than a trust or a will. An individual with an account at a bank can designate a beneficiary who will inherit any money in the account after his or her death. This is called a payable on death (POD) account. People who opt for POD accounts do so to keep their money out of probate court in the event that they pass away. Designating a beneficiary is a cost-free service with banks and credit unions that allows for the transfer of all checking and savings accounts, security deposits, savings bonds, and other deposit certificates simply by filling out the proper forms by the account holder. He or she needs only to notify the financial institution who the beneficiary should be. The bank will then provide the owner of the account a beneficiary designation form  to complete. This completed form gives the bank authorization to convert the account to a POD.

The beneficiary is not entitled to any of the funds in the account while the account holder is still alive. Only upon death will the beneficiary become the owner of the account, bypassing the account holder’s estate and skipping probate completely. In the event that the owner of a POD account passes away with unpaid debts and taxes, his or her POD account may be subject to claims by creditors and the government. POD is something we use often at our law firm while setting up estate plan documents for our clients.