While trusts have been a preferred way of passing on money after death for decades, payable-on-death accounts are growing in popularity and are a better fit for many adults. What are the key differences between payable-on-death accounts and trusts?
The Basics of Payable-on-Death Accounts
Payable-on-death (POD) accounts are bank accounts that allow money to pass directly to beneficiaries named by the account owner after the owner’s death. This prevents money from entering into probate. Creating an account is as easy as letting the bank holding the account know how you want to deposit the money (checking, savings, money market or certificate of deposit). Once you name the beneficiary, the bank will take care of the rest.
As long as you are alive, the beneficiary will not have any right to the money or be able to access it. If you want to change the beneficiary, you can easily change the name. As long as you haven’t closed the account, at your death, the payable-on-death account will go to the named beneficiaries, even if you have a will or revocable living trust that says something different.
The Differences Between Payable-on-Death Accounts and Trusts
The primary downside of POD accounts is that you cannot name an alternate beneficiary. However, there are many benefits including:
- POD accounts are very easy to create
- They can contain an unlimited amount of money
- It is free to name a beneficiary
- Claiming the money is simple
What Else Should You Know?
While you will avoid probate, you will not be able to protect the money from creditors. You cannot use a POD account to slip out of legal obligations, so if you decline to pay your debts or taxes, the account might be subject to claims before it can be given to the beneficiary. If you leave the account to someone other than your spouse, your spouse may still be entitled to half the account if you reside in a community property state.
After your death, the beneficiary can claim the money in the account by giving the bank a certified copy of a death certificate and proof of identity. There won’t need to be any court proceedings. State law is the only thing that will determine the waiting period before the funds are officially released.
Consult Your Advisor for POD Account Advice
If you have any concerns about the planning or distribution of your estate, from filing your personal Federal Taxes to developing estate plans, you should contact Miles Tax Advisory. You can trust our expertise and years of experience to help you maximize your wealth and take care of every member of your family now and in the future, and we’ll always give you the individual attention you need.