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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POD accounts function like an informal trust (it is sometimes called a Totten trust) because the money in the account avoids probate court and can be claimed by your beneficiary directly from your bank.
During your lifetime, the beneficiaries have no rights 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 may be able to designate an alternate beneficiary in case your first named beneficiary predeceases you.
If there are no living beneficiaries at the time of your death, money in the account will become part of your estate and will go through the probate process.
What Type of Account Can Have a Named Beneficiary?
All of your bank accounts (checking account, savings account, 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 transferred into POD accounts. The beneficiary will only receive the assets after the last account owner dies.
Investments accounts, brokerage accounts, stocks, and securities can be transferred by setting up a (transfer on death) TOD account. Most states have adopted the Uniform TOD Security Registration Act, but brokerage firms can still choose not to offer TOD registration.
How Do You Claim a POD Account?
Claiming a POD account is a straightforward process. The beneficiary goes to the bank or credit union holding the account 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.
