Pros and cons of a ‘payable on death’ account

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Q. Please explain the advantages and disadvantages of designating a payable on death (POD) recipient on a bank account. When the account holder dies, does the POD recipient just receive a final account-closing check from the bank, or does the account transfer to the recipient so that the recipient can continue to keep that account alive?
— Planning ahead

A. Let’s explain.

A POD account is a non-qualified bank account with a named beneficiary. These are also available for non-qualified brokerage/investment accounts, but is instead called a TOD or Transfer on Death account.

The primary advantage to a POD account is that when the account holder passes away, the named beneficiary becomes the owner of the account, said Alison Hall, a certified financial planner with Stonegate Wealth Management in Oakland.

This move keeps assets out of probate and bypasses the estate altogether.

Hall said when the account holder dies, the beneficiary is typically asked to produce identification and a certified, stamped copy of the death certificate. Once documentation is accepted and processed, the beneficiary can either open an account with the institution and have the assets transferred or request a check for the balance, she said, noting that different banks will have varying protocols.

The main disadvantage to this strategy is that you are not able to name contingent beneficiaries, Hall said.

“If the beneficiary passes away prior to the account holder, no beneficiary will be automatically named in their stead; the account holder would need to complete new paperwork naming another individual,”she said. “It’s also important to keep in mind that even though the funds are free from probate court, they may still be subject to creditors of the estate.”

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This story was originally published on Jan. 24, 2020.

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