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Payable on Death Accounts – PODs & TODs

Payable on Death Accounts are relatively simple ways to get assets into the hands of your loved ones after you pass away, while avoiding probate. Though these methods can sound ideal on the surface, there will be drawbacks in most instances. With this in mind, we will look at POD accounts in this post.

In 30 years of practicing estate planning law, I sit down with the family of someone who recently died just about every week. The discovery of a bank account (often with a small balance) that was just titled in the name of the person who died can be very frustrating. The bank will not release the account to the family without an order from the probate court. The cost, time delay, and hassle could have been completely avoided had the person simply added a POD designation to the account.  

“The cost, time delay, and hassle could have been completely avoided had the person simply added a POD designation to the account.”

Payable on Death

In this context, the acronym POD stands for payable on death. A payable on death account is an account that you can open at a brokerage or bank. When you establish the account, you name a beneficiary. After you die, the beneficiary would assume ownership of any assets that remain in the account.

These accounts are alternately referred to as transfer on death (TOD) accounts or Totten trusts. The name is derived from Matter of Totten179 N.Y. 112 (1904), the case decided by the New York Court of Appeals, which established this practice’s legality.

Probate Avoidance

One of the advantages that you gain if you have a POD account is probate avoidance.

If you did not have a beneficiary and you named someone in your last will to assume ownership of the assets in your bank account, the heir would not receive his or her inheritance right away. The process of probate would slow things down considerably.

A will must be admitted to probate, and the heirs to the estate do not receive their inheritances until after the court has closed the estate. In most jurisdictions, the probate process will take close to a year at a minimum.

When you have a POD account, the transfer to the beneficiary would not be subject to the probate process. The person named as beneficiary simply needs to present a death certificate, and the bank will release the account to them that same day.

Payable on Death Accounts to Avoid Probate
Payable on Death Accounts are a Great Tool to Avoid Probate


A payable on death account may sound like a great estate planning solution, but there are some drawbacks to take into consideration. For one, you may be able to add multiple beneficiaries, but the institution may require equal distributions. This may not be consistent with your true wishes.

“A person who dies ‘out of order’ can create problems if you rely solely on POD Accounts.”

Plus, if you name multiple beneficiaries, one of the beneficiaries’ death can complicate things considerably. Should the other beneficiaries divide the remainder, or should the deceased beneficiary’s family get a share?

You could name a single beneficiary and tell the beneficiary to divide the assets among multiple family members after your passing. However, the beneficiary would not be legally compelled to follow these instructions.

One significant disadvantage to POD accounts is that should the named beneficiary be disabled or receive any form of governmental assistance, including social security disability payments, then receiving an account in this manner would affect their eligibility to continue to receive assistance.

Additionally, many of our clients suffer a period of incapacity before death. With a POD designation, there is no way to account for incapacity when you have a payable on death account,

The last point to make regarding drawbacks on POD accounts is that this type of account does not provide asset protection or tax planning. For many people, these are not concerns.

Bottom Line

The use of POD accounts can be extremely helpful as a part of an estate plan. It is first important to understand what this designation means. I strongly suggest that you start by making a simple list of all of the bank accounts that you have and record how they are titled and designated. Each account should be titled in a way that should you die, that account passes to someone without the need for probate. Asking the bank to designate a POD is one way to make this happen. This list should be part of your estate plan.

If you would like more information on this, or would like to have your estate plan reviewed, please contact my office and I would be happy to meet with you.

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