How Does A Payable-on-Death Account Work?

Cheerful senior couple counting coins at table

Most of the time, payable-on-death accounts are referred to as POD accounts or Totten trusts. These are simply regular bank accounts that allow the account owner to specify beneficiaries that are entitled to withdraw the funds if the owner passes away. As long as the account owner survives, the account belongs to this person. The owner is free to make deposits and withdrawals as he or she pleases. The only difference is that the account passes to a beneficiary or beneficiaries upon death.

Pros and Cons of POD Accounts for Seniors

The biggest attraction of one of these accounts is that it is very simple to set up and use. Banks usually just require a simple form to set one up. Similarly, the beneficiary can usually withdraw funds quickly by presenting required paperwork.

This type of account might be a good idea for people who want to set aside a modest amount of money that a trusted beneficiary might need right after the owner passes away. For example, an elderly parent might set one up to make sure that one of the children or grandchildren has money to fund a funeral and handle other immediate expenses. By having access to this kind of bank account, the beneficiary can avoid probate. Probate is usually a fairly long and expensive process.

However, a POD account probably shouldn’t be used in place of a will or other kinds of estate planning. It’s simple, but the forms really don’t allow the account owners to specify their intent for the money. There have been plenty of cases where other heirs of a deceased person disputed a POD because all of the heirs were not given an equal share of the funds. In any but the simplest cases of one account owner and one potential heir, having a POD without a will can cause contention within families.

When to Consider a POD

With good communication between all of the heirs of an estate, it might be fine to use one of these accounts to make sure that a responsible party has quick access to funds that he or she needs right away. For example, an elderly person might set aside several thousand dollars to pay for a funeral and to get a family home ready for sale. Since this money isn’t really for the benefit of the one beneficiary more than any other heir, it might be reasonable to assume that the money isn’t really that person’s share of the inheritance.

A will is one typical tool that can be used to communicate this intention of the person who has passed away. There are many different ways to prepare a will, and they are all usually a lot cheaper and better than probate and family strife.