Payable on Death (POD) Accounts

Retired couple working with their lawyer on an estate plan

Payable on death accounts can help streamline the process of transferring certain assets to loved ones after you pass away. Also referred to as a POD account or Totten trust, a payable on death account can be established at a bank or credit union and is transferrable to the beneficiary of your choosing. There are different reasons for including a payable on death account in your estate plan and it’s helpful to understand how they work when deciding whether to create one. Estate planning is best done with the counsel of a financial advisor, who can help you coordinate your investment goals with your end-of-life wishes.

Payable on Death Account, Explained

A payable on death account is a type of bank account that can be used for estate planning purposes. You can create this type of account at a bank or credit union and your bank may also let you convert any existing accounts you have to a POD account.

The difference between a traditional bank account and a POD account is that the latter has a named beneficiary. This is someone you choose to receive any assets held in the account when you pass away. Depending on your bank, you may be able to name multiple beneficiaries for the same account or choose a primary beneficiary, along with one or more successor or contingent beneficiaries.

How a Payable on Death Account Works

A payable on death account is simply any bank account that has a named beneficiary. For instance, a POD account can be a:

What makes a bank account a payable on death account is having a named beneficiary. It’s up to you to decide who to name. If you’re married, your spouse might be a logical choice. But if you’re unmarried, divorced, widowed or separated you might choose an adult child, sibling or another relative instead.

During your lifetime, you have control over the assets held in a POD account. So if you name a beneficiary for your checking account, for instance, you’d still be able to spend money in the account as you normally would.

Once you pass away, the assets held in a payable on death account would be transferred to the beneficiary. Typically, they’d need to show proof of identification and a copy of the death certificate before the transfer can be completed. State laws vary, so it’s important to understand how the process works when choosing a beneficiary.

Pros of Payable on Death Accounts

Older couple working with a financial advisor on their estate plan

Older couple working with a financial advisor on their estate plan

There are several benefits associated with using POD accounts to transfer assets. First, assets that are passed to someone else through a POD account are not subject to probate. The probate process, which is a legal process in which your assets are inventoried, debts are paid and remaining assets distributed to your heirs, can be time-consuming and costly. Setting up a payable on death account allows the beneficiary you name for that account to sidestep it for any assets held in that account.

That’s an advantage if you want to ensure that your beneficiary is able to access cash quickly after you pass away. Even if you have a will and a life insurance policy in place, those don’t necessarily guarantee a quick payout to handle things like burial or funeral expenses or any outstanding debts that need to be paid. A POD account could make it easier for your loved ones to get the funds they need right away to pay for those and other expenses.

It’s important to keep in mind that beneficiaries can’t access any of the money in a POD account while you’re alive. On one hand, that could be seen as a pro since you don’t have to worry about them spending down the assets without your knowledge. But it also has the potential to be a con in certain situations.

Cons of Payable on Death Accounts

As mentioned, beneficiaries of a POD account can’t tap the money while the primary account owner is still living. That could be problematic if you become incapacitated and your loved ones need money to help pay for medical care. In that instance, having assets in a trust or a jointly owned bank account could be to your advantage.

Another con is that you can’t change the beneficiary of a POD account once you name someone. So if they pass away before you do and there are no other beneficiaries named to follow after them, the account would be subject to the normal probate process.

Payable on Death Account vs. Trust

You may be wondering whether payable on death accounts are better than trusts for estate planning. Trusts allow you to transfer assets to the control of a trustee on behalf of one more beneficiaries. You can act as a trustee or have someone else fulfill that role during your lifetime and after you pass away.

Technically, POD accounts are a type of trust. Again, banks may reference them as Totten trusts, informal trusts or tentative trusts. The difference is that they’re easier and less expensive to set up than a traditional living trust. And of course, they only focus on assets held in a bank account.

Setting up a payable on death account could make sense if you want to make sure your beneficiaries have a source of ready cash when you pass away. But you may still need a living trust if you have other assets you want to transfer, such as real estate, vehicles, investments or business assets.

How to Set Up a Totten Trust or POD Account

Estate Planning key on a keyboard

Estate Planning key on a keyboard

If you’re interested in creating a payable on death account, the first step is contacting your bank. They can tell you whether it’s possible to add a beneficiary designation to any existing accounts you have or whether you’d need to create a new account. From there, you’d need to decide who you want to add as a beneficiary. Remember that once you make a beneficiary designation it cannot be changed. So you need to be reasonably sure that the person you choose will outlive you and manage any assets they receive responsibly.

Next, you’d want to let the person you’re naming as beneficiary know that you’re creating a POD account. This way, they can familiarize themselves with what they’ll need to do to claim any assets in the account once the time comes.

Finally, compare the terms of the POD account with the terms specified for those assets in your will. In most cases, a payable on death account can override a will so reviewing your wishes can help avoid any potential conflicts among your heirs after you pass away.

The Bottom Line

Whether you call it a payable on death account or a Totten trust, this type of account can serve a useful purpose when creating an estate plan. If you’re not sure whether you need a POD account, your financial advisor may be able to shed some light on when it makes sense.

Tips for Estate Planning

  • Consider talking to a financial advisor about the best ways to pass on bank accounts, investment accounts and other assets. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. If you’re ready, get started now.

  • Until you know what you’ll have to retire on no estate plan can be complete. A free, easy-to-use retirement calculator can give you a quick and accurate idea of whether you have reached your financial goals.

  • A transfer on death account automatically transfers its assets to a named beneficiary when the holder dies For example, if you have a savings account with $100,000 in it and name your son as its beneficiary, that account would transfer to him upon your death.

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