Don’t Overlook a Payable on Death Account

Payable on death accounts (POD accounts) have become quite popular in the last several years. A POD account is a type of account authorized by state law that allows the account owner to designate one or more beneficiaries to receive the funds left in the account when the account owner dies. This will allow the account owner to do what he or she pleases with the funds held in the account during the account owner’s lifetime, but after the account owner dies, the designated beneficiaries will be able to withdraw the funds remaining in the account without the need for probate.

Sounds great, doesn’t it? In fact, POD accounts are really easy to set up and make sense for many people. But don’t mistakenly think that it’s a substitute for real estate planning. There are countless ways that a do-it-yourself plan using PODs can backfire. Here are a few examples of what can, and often does, go wrong:

1. POD accounts can be set up as joint accounts that become payable on death after all joint owners die. This means that if a husband and wife in a second marriage set up a POD account that will go to all of their children from their first marriages after both of their deaths, and then the husband dies, the wife can simply change the POD beneficiaries to her own children and disinherit the husband’s children.
2. Same scenario as above, except that the wife remarries and decides to name her new spouse as the POD beneficiary, thereby disinheriting both her children and her deceased husband’s children.
3. If the POD account owner is the only owner listed on the account and he or she becomes incapacitated, then without a power of attorney in place, the account owner’s family will need to establish a guardianship or a conservatorship to access the account on behalf of their sick loved one.
4. If all of the POD beneficiaries predecease the account owner, then the account may have to be probated.

These are just a few examples of why POD accounts should not be the sole extent of your estate plan. You certainly need to have an estate plan in place which encompasses a last will and testament, power of attorney, living trust, and advance health care directive. These documents should be in place to insure that you and your property are protected in case you become incapacitated, and your property goes where you want it to go after you die.

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TO THE EXTENT THIS ARTICLE CONTAINS TAX MATTERS, IT IS NOT INTENDED NOR WRITTEN TO BE USED AND CANNOT BE USED BY A TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER, ACCORDING TO CIRCULAR 230.
Randall Denha, J.D., LL.M., is principal and founder of the law firm of Denha & Associates, PLLC with offices in Birmingham and West Bloomfield, MI. He can be reached at (248) 265-4100 or by email at rad@denhalaw.com.