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Payable on Death Beneficiary for Accounts

Written by: FindLaw Staff , Contributing Author
Reviewed by: Catherine Hodder, Esq. , Senior Legal Writer
Last updated March 08, 2024

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Planning your estate doesn’t have to be expensive or complicated. You can transform your deposit accounts into estate planning tools by adding a beneficiary designation.

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Understanding payable on death accounts and beneficiary designations is an important step in your estate plan to reduce estate taxes and bypass probate court.

What Is a Payable on Death Beneficiary Account?

A payable-on-death account is an account that you own but name a beneficiary to receive that account when you die. For example, when you open a checking or savings account at an FDIC-insured bank, you make a beneficiary designation at the bank or financial institution naming someone to inherit that account. A payable on death account (POD) is also called a transfer on death account or (TOD).

POD accounts sometimes function like an informal trust (sometimes called a Totten trust) because you hold the money in the account in trust for (ITF)someone else. The advantage of a POD account is that it avoids probate court. After your death, the account goes directly to your beneficiary.

During your lifetime, the beneficiaries have no right to the account. As the account holder, you can spend the money, close the account, or change the designated beneficiaries. The account will function the same as any other account of its kind without a POD designation.

Who Can Be Named a POD Beneficiary?

The beneficiary rules for POD accounts are very flexible. You can choose to have one beneficiary for several accounts or multiple beneficiaries for one account. You can name a friend, a loved one, or an IRS-recognized charity. Depending on your state’s laws, you can designate an alternate beneficiary if your first named beneficiary predeceases you.

It’s always a good idea to check that all your bank accounts have beneficiary designations and backup beneficiaries. If there are no living beneficiaries at the time of your death, the money in the account becomes part of your estate and goes through the probate process.

What Type of Account Can Have a Named Beneficiary?

All your bank accounts (checking, savings, money market accounts, certificates of deposit) can become payable on death accounts. Retirement accounts, IRAs — these can all transfer on death.

Joint accounts can also be POD accounts. The beneficiary will only receive the assets after the last account owner dies.

You can set up (transfer on death) TOD accounts for investment accounts, brokerage accounts, stocks, and securities. Most states have adopted the Uniform TOD Security Registration Act, but brokerage firms can still choose not to offer TOD registration.

A life insurance policy is different than a payable-on-death account. You create a policy as the owner and designate someone to be a beneficiary of your life insurance proceeds. You pay premiums for a set policy sum. Similar to POD accounts, you should review your beneficiary designation and name a backup beneficiary.

How Do You Claim a POD Account?

Claiming a POD account is a straightforward process. The beneficiary goes to the bank or credit union and presents a copy of your death certificate. They will also need to show valid identification and fill out transfer forms. Some states have a short waiting period; in others, the beneficiary can claim the funds immediately.

TOD beneficiaries must take steps to re-register the securities in their names. This typically involves sending a copy of the death certificate and an application for re-registration to the transfer agent.

Be aware, POD accounts are subject to outside claims.

  • You can’t use a POD account to avoid paying your debts. You must leave enough money in your estate to tie up your financial affairs.
  • You cannot use a POD account to disinherit a surviving spouse. If you live in a community property state, your spouse has a right to half of your assets, including those listed only in your name.

Tax Issue with POD Accounts

Six states levy an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Your beneficiary may be subject to an inheritance tax if they live in one of these states. There is no federal inheritance tax.

POD Accounts Are Only One Estate Planning Tool

Planning your estate doesn’t have to be expensive or complicated. As demonstrated, you can transform your deposit accounts into an estate planning tool by adding a beneficiary designation. And setting up a POD account is easy to do. Simply ask for the financial institution’s payable-on-death beneficiary form (POD). The POD payee will receive the money in the account upon your death.

However, there are many other estate planning options available to you. A complete estate plan includes a last will and testament, financial power of attorney, healthcare power of attorney, and advance medical directive or living will. You can use FindLaw’s state-specific estate planning forms or schedule an appointment with an estate planning attorney to get your estate planning done.

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