Are Pay on Death (POD) Accounts a Good Idea?

You can set up an account like this at banks or credit unions, and some brokerage houses will allow for transfer on death options as well. When you set up the account you name a beneficiary who would assume ownership of the resources in the account should you pass away. One of the appeals of this is that the transfer of assets would take place outside of the costly and time-consuming process of probate.

Though the above sounds kind of attractive, there are many pitfalls that go along with payable on death accounts as well. For one, some institutions will allow you to add multiple beneficiaries. However, they may require that you allow for the resources in the account to be split equally among the beneficiaries and this may not be what you want to do.  In addition, they may also require that if one of the named beneficiaries is dead, his or her share will be distributed to the other surviving beneficiaries and not the children of the dead beneficiary, or vice versa.

Distributions through POD and TOD accounts can also be very problematic when the person named is a minor, has a disability and is receiving certain public benefits, has problems such as bad marriages, drug alcohol or gambling addictions and or is in serious financial trouble. In such cases, inheritances through PODs and TODs could end up in the hands or unwanted predators and creditors.

Another thing to consider is the prospect of incapacity. If you were to become incapacitated the funds would not be accessible to the beneficiary and you may prefer to make some other arrangements to provide for your beneficiary in the event of your incapacitation.  POD and TOD accounts only provide for transfer of ownership and control at death, not in cases of incompentence.

Payable on death accounts can seem like a good solution on the surface but when you dig deeper you will find that there are likely much better alternatives. To explore them, simply sit down and discuss your situation with an experienced and qualified estate planning lawyer.