Is a Payable on Death Account, or POD Account, Right for You?

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Payable on death accounts, or "POD accounts" for short, have become quite popular in the last ten years or so. What is a POD account? It is a type of account authorized by state law which allows the account owner to designate one or more beneficiaries to receive the funds left in the account when the account owner dies. It will allow the account owner to do what he or she pleases with the funds held in the account during the account owner's lifetime, but then after the account owner dies the designated beneficiaries will be able to withdraw the funds remaining in the account without the need for probate.

POD Pitfalls

Sounds great, doesn't it? In fact, POD accounts are really easy to set up and make sense for many people, and currently, a handful of states even recognize POD deeds for real estate and POD designations for automobiles. But - and there's always a but, isn't there? - These types of accounts also lead those who establish them to believe that they've done their own "quick and dirty" estate planning and so there's no need to take any additional steps. It could not be further from the truth. Here are a few examples of what can, and often does, go wrong:

  1. POD accounts can be set up as joint accounts that become payable on death after all of the joint owners die. It means that if a husband and wife in a second marriage set up a POD account that will go to all of their children from their first marriages after both of their deaths and then the husband dies, the wife can simply change the POD beneficiaries to her children and disinherit the husband's children.
  1. Same scenario as above, except that the wife remarries and decides to name her new spouse as the POD beneficiary, thereby disinheriting both her children and her deceased husband's children.
  2. If the POD account owner is the only owner listed on the account and he or she becomes incapacitated, then without a power of attorney in place the account owner's family will need to establish a guardianship or a conservatorship to access the account on behalf of their sick loved one.
  1. If all of the POD beneficiaries predecease the account owner, then the account may have to be to probated.

These are just a few examples of why POD accounts should not be the sole extent of your estate plan. You may very well need to have a last will and testament, power of attorney and advance health care directive in place to ensure that you and your property are protected in case you become incapacitated, and your property goes where you want it to go after you die.