Table of Contents
- Understanding Payable on Death (POD)
- How to Designate a POD Account
- Fast Fact on POD vs. TOD
- Details on Beneficiaries
- Important Note for Claiming Funds
- Can a Beneficiary Access Funds While You're Alive?
- What's the Main Benefit of a POD Account?
- Is There a Minimum Requirement for POD Accounts?
- The Bottom Line
Understanding Payable on Death (POD)
Let me explain to you what a payable on death (POD) account is. If you have a bank account with a named beneficiary, that's a POD account. It's also called a Totten trust, and it lets you specify the person or entity who gets the money in the account after you die.
One key thing you need to know is that a POD account overrides your last will. So, if you've named one person as the beneficiary on the POD, but your will says someone else should get it, the POD beneficiary wins out.
Key Takeaways
- A POD arrangement is an estate planning tool.
- Assets are available for transfer immediately after the account holder's death.
- The beneficiary must present a government-issued ID with a certified copy of the death certificate to claim the funds.
How to Designate a POD Account
You can set up a POD on your checking or savings account, security deposits, savings bonds, or a certificate of deposit (CD). The main reason people do this is to keep their money out of probate court after they pass away. To designate a beneficiary, you just notify your bank and fill out a beneficiary designation form—it's a free service.
Here's a significant benefit I want to point out: with a POD, you can boost your FDIC coverage limit. Normally, the FDIC insures up to $250,000 per individual at one bank for accounts like checking, savings, money markets, and CDs. But since a POD acts like a revocable living trust with a beneficiary interest, the FDIC covers up to $1,250,000 across up to five accounts at the same bank, as long as each has a different beneficiary. No beneficiary gets more than $250,000 coverage. This means instead of putting $1,250,000 in one account and only getting $250,000 insured, you can spread it into multiple POD accounts to multiply your coverage by five.
Fast Fact on POD vs. TOD
You should know that a POD account is very similar to a transfer-on-death (TOD) arrangement, but it specifically handles your bank assets, not things like stocks, bonds, mutual funds, or other investments.
Details on Beneficiaries
When you die, the beneficiary automatically becomes the owner of the account, skipping your estate and probate entirely. But keep in mind, if you die with unpaid debts or taxes, creditors or the government might make claims on the POD account. That could make it hard for your estate's executor to settle those using the POD funds.
If the account is jointly owned, the beneficiary can't touch the funds until the last owner dies. Then, the assets go to the beneficiaries named by that last surviving owner. Also, if you live in a community property state, your spouse might claim half the assets in the POD account, except for money you got before marriage or inherited.
You can name more than one beneficiary on a POD account, but state laws might require equal distribution of the funds. This can get complicated with things like bonds. You can't name alternate beneficiaries—if your beneficiary dies before you, the assets go to your estate or will.
Important Note for Claiming Funds
Remember, beneficiaries have to show a government-issued ID and a certified copy of your death certificate to claim the POD account.
Can a Beneficiary Access Funds While You're Alive?
No, the named beneficiary in a POD account gets nothing while you're still alive.
What's the Main Benefit of a POD Account?
The primary benefit is avoiding costly probate proceedings, so your heirs get the money from accounts like savings or CDs without court delays after you die.
Is There a Minimum Requirement for POD Accounts?
There's no minimum amount of money needed in the account at death. You face no limitations—you can spend all the money before you die, change the beneficiary, or even close the account.
The Bottom Line
Designating POD on your bank accounts helps you avoid the costs and delays of probate court. You can add this as part of your estate planning.
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