How Can Pay on Dying (“POD”) Accounts Influence Your Property Plan?

Pay on Death (“POD”) Accounts can be a useful tool in estate planning, but they can also create unintended problems. Let’s consider some of the pros and cons of using POD accounts.

POD accounts are used to get an account transferred to a recipient upon your death, without the need to involve probate court, a will, or a trust. Some initial things to understand: “Pay on Death” and “Transfer on Death” (“TOD”) accounts are basically the same thing – but PODs are used for checking, savings, and certificates of deposit, and TODs are used for brokerage accounts , stocks, and bonds. I will use the term “POD” from here on out, though most of what I write about POD accounts also applies to TOD accounts. Life insurance and qualified retirement accounts (such as 401k or IRA accounts) have a slightly different feature called a “beneficiary designation” which accomplishes a similar outcome but has important differences.

The obvious advantage of using a POD account is that the person you list as the designated recipient typically needs only their photo ID and your certified death certificate to walk into your bank or credit union to claim the funds in the account. No probate court process, and no need to show the bank a last will and testament or anything else. Other than having to wait to get your death certificate from the State, the process is usually very quick and seamless.

So, what can go wrong? Several things… POD accounts do not allow you to list an alternate recipient (in case the primary recipient dies before you, for example). This means that you cannot do any contingency planning with POD accounts. You will need to be vigilant in keeping your designated recipient up to date. Note that this is a major difference with PODs and the “beneficiary designations” you can make on IRAs/401ks and life insurance policies – where you can and should designate alternate or contingent beneficiaries.

POD accounts need to be thoughtfully coordinated with the rest of your estate planning picture. POD designations will be followed even if you have a will or a trust that says someone other than the POD recipient is the beneficiary of your estate, so really understanding how each piece of the estate puzzle will work is very important.

Problems can arise if you designate one child as POD recipient of funds in your account(s) with the expectation that the recipient child will use those funds to pay for your final expenses and then share the remainder equally with your other children. The reason this informal arrangement is risky is that the recipient child becomes the legal owner of the account funds on a POD account upon your death and has no legal obligation to do any particular thing with those funds. If the recipient child pockets the funds and does not pay your final expenses, settle your debts, and share the remainder with your other children, there is nothing those other children can do about it (your creditors may be able to force the recipient to hand the funds over to a probate of your estate in order to get your final debts paid though).

Another concern: even if you have 100% confidence that the POD recipient you’ve listed would do exactly what you want her to with the funds, if that person is in their own financial difficulties (being sued, going through a bankruptcy, owes someone money, divorcing, owes child support, etc.) – they may lose the funds you left them before they have the option of using them the way you intended.

One trick that many of my clients with living trusts like to use is to name their living trust as the POD recipient of the accounts that they do not transfer into their trusts during their lifetimes. This can be an efficient way to be sure the funds will be handled exactly as you desire – but it does require establishing a trust.

There are many ways that POD accounts can be useful to your overall estate planning. However, coordinating all the aspects can be confusing, and getting a professional estate planner to guide you is always a good idea.

My law firm is currently offering free telephonic, electronic, or in-office consultations concerning creating new or reviewing existing estate planning documents.

Robert J. Green is an Elder Law, Trust, Estate, & Guardianship Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, powers of attorney, guardianships, Medicaid planning, or VA benefit planning, contact Robert at 208-765-6555, [email protected], or visit .

This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.

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