Q. I am seventy-six years old. My estate is less then $50,000 – mostly cash and stock. I have two children I would like to leave my money to but I don’t want them to have to spend money opening up an estate and going through the probate process. Likewise, I don’t want to spend money on a lawyer to create a trust. A neighbor suggested I open up a Pay On Death bank account and said it would work just as well. I have a “Will” which has my two children as my sole heirs. Is a Pay on Death account a good option for me?
A. If at all possible you will want to avoid the probate process, especially if you have a small estate and you simply want your money to pass through directly to your children without having to spend unnecessary money on attorney fees and court costs. Another disadvantage of having to go through probate is that it leaves your money exposed to legal disputes from other potential heirs and creditors. The easiest and fastest way to avoid probate is to create a “Payable On Death” (POD) account with your local bank.
Payable On Death bank accounts are very common today. The chances are your existing account already includes this option. If not, you can speak with your local banker and ask them to transfer your money to an account that provides a POD provision. Once you are setup with one, all you need to do is to provide the bank with the specific names of your beneficiaries and include their addresses and telephone numbers.
Most states provide that POD accounts may be for a single or multiple beneficiaries. A beneficiary is not the same as a joint account holder. A beneficiary is the person(s) named for which the money in the POD account will be payable to upon your death.
A POD account is not like a joint account. Unlike a joint account holder, your POD beneficiaries do not have any legal rights or interest in your account while you are still alive. If there are multiple beneficiaries named, each will receive their funds in equal shares unless you the owner of the account has designated a different percentage to be apportioned between your beneficiaries.
Beneficiaries Rights Prior To Death
On a POD bank account the beneficiary has no rights to the funds until your death. Until that time, you are free to use the money in any way you choose. You are under no obligation to maintain certain cash levels in the account or leaving any money whatsoever in your account.
In most states, the major disadvantage to a POD bank account is that you are unable to name alternate beneficiaries. Alternate beneficiaries tend to complicate the process and these accounts are not really set up to accommodate alternate heirs. However, one way of possibly overcoming this obstacle is by setting up multiple POD bank accounts for each of your beneficiaries. This can be tricky however and you will want to spend some time with your banker thinking this through.
Some states have different names for POD bank accounts. For example, New York refers to these types of accounts as Totten Trusts.
How Do My Beneficiaries Get Their Money
The process is surprisingly simple. Upon your death, your POD named beneficiary will be required to produce their identification and a certified copy of your death certificate to the bank. So long as there are no disputes between your named beneficiaries, the bank will release the funds in accordance with the POD bank account instructions.