Pay-on-death (“POD”) or transfer-on-death (“TOD”) accounts offer an easy way to keep money – even large sums of it – out of probate. Setting up a POD designation is simple. You notify your bank, credit union, or investment advisor that you want to name a beneficiary for the account. Each institution will have its own forms that you must fill out. These forms are typically one page and allow you to name someone to receive the proceeds of the account at your death.
You should also be aware that POD designations override the terms of your will or trust. So it is prudent to be careful when using POD designations to ensure that your estate plan is coordinated with your wishes. It is possible to render your will or trust completely invalid if you do not carefully coordinate your POD designations.
What Types of Accounts Can I Use a POD Designation On?
POD designations can be used for checking accounts, savings accounts, money market accounts, certificates of deposit, U.S. savings bonds, taxable investment accounts, vehicles, and – in some states – real property.
Who Can Be the Owner of a POD Account?
A natural person, adult or minor, can be the owner of a POD account. Corporations, partnerships, and limited liability companies cannot be the owner of a POD account.
Who Controls the Money in the POD Account While I’m Still Alive?
You control the money. You can withdraw the entire amount if you wish. While you are alive, the beneficiary has no right or interest in the account and cannot withdraw any money from your account.
Can I Change the Beneficiary After My POD Account Has Been Opened?
Yes. You have the right to change the beneficiary so long as you are alive and competent. You must notify your financial institution if you want to make a change, because no change of beneficiary is effective unless it is completed on the form used by the financial institution according to the institution’s rules and regulations.
Who Can Be a Beneficiary of a POD Account?
Under Texas law, a POD designee may be a person, a trustee of an express trust evidenced by a writing, or a charitable organization.
Can I Name More Than One Beneficiary at a Time?
Yes; Texas law allows you to name more than one beneficiary for your POD account. However you should determine whether the particular financial institution permits multiple beneficiaries and if the institution has a special form to designate multiple beneficiaries.
What Happens to the Money in my POD Account When I Die?
Any money in the account when you die will pass automatically to your beneficiary or beneficiaries. As long as your designated beneficiaries survive you, the money will not pass under your last will and testament or trust and will not be subject to the administration of the probate court.
Can I Avoid Paying Creditors By Using POD Designations?
No. By law, all debts must be paid before any beneficiary can take his or her inheritance. In the POD context, the money would be paid directly to the beneficiary without having to pay the creditor. However, because all debts must be paid, the executor of the estate will have to bring the assets back into the estate. If there is no executor because there are no probate assets, a creditor has standing to initiate probate proceedings in an effort to be paid what they are owed. If your heir has spent the funds before either of these scenarios occur, your heir is still responsible for your debts. Make sure you have no debts or have sufficient other assets to pay your debts to prevent your beneficiary from being dragged into an ugly courtroom battle.
Why Should I Consider a POD Designation?
POD designations can help make sure that funds are available immediately for your executor, personal representative, children, or whomever, to pay for funeral expenses or other immediate cash needs during the estate administration process. Since the probate process can take several months to years to complete, accounts subject to the probate process may be frozen for an extended period of time. This leaves your heirs and loved ones in the unenviable position of paying your expenses out of their own pockets.
What Are the Advantages of POD Designations?
There are numerous advantages to using POD designations. These include:
- The transfer of the accounts OUTSIDE of the probate process
- Quick and easy transfer
- Typically it is free to make a POD designation
- The POD designee has NO RIGHTS to any money until your death
- Designations are revocable so you can change them at any time
- You can name multiple beneficiaries
- You can leave unequal portions to the named beneficiaries
What Are the Disadvantages of POD Designations?
As with anything, there are drawbacks to using POD designations. These pitfalls include:
- Designations could conflict with an overall estate plan or even override it
- Taxes that may be due are not withdrawn from the POD account leaving it to the beneficiary to pay any taxes due
- If the beneficiary predeceases you the account becomes part of your probate estate
In conclusion, POD designations can be invaluable to your heirs if done properly and in conjunction with your existing estate plan. Naming a POD designation can help provide the necessary funds to pay for your funeral or last illness expenses, preventing your heirs and other loved ones from having to come up with the money out-of-pocket.
If you would like further information or discuss your particular situation in greater detail, contact Green Law, PLLC at (806) 548-2953 or via email at firstname.lastname@example.org. We welcome the opportunity to sit down with you, go over your options, and make a plan that is right for you and your family.