inserting coin to a piggy bank

“It’s not that these accounts can’t or shouldn’t be used, it’s just they have to be coordinated carefully with the rest of the plan,” says Patrick Lannon, an estate lawyer with Bilzin Sumberg in Miami, Fla. “If there is more than one child and you make a paid on death account in favor of just one, it’s bound to cause misunderstanding,” he adds.

Sometimes it’s the simple things in life that you have to watch out for. Things that appear simple can actually be very complex. So it is with “payable on death” accounts, or PODs.

Forbes recently featured this subject in an article titled When Payable On Death Accounts Backfire.”

The promise of a “payable on death” account cannot be undersold. Funds subject to such an arrangement escape probate and transfer straight to the named beneficiaries. No muss, no fuss.

On the other hand, whenever an asset passes “outside” of your estate by avoiding probate, it may not be in sync with your overall estate plan. This is true when you really intend for all of your heirs to share in your estate equally. If you have any accounts “payable on death” to just one of your heirs, then he or she will receive more of your estate than intended.

Perhaps you want a particular account “payable” to the heir who also will be your executor. Your thinking is that such a move will enable them to have ready cash for funeral and other final expenses when needed. To avoid misunderstandings and hard feelings, make
your intentions clear in your estate planning legal documents. For example, you could provide that any proceeds left after your funeral and final expenses will become part of the inheritance for that heir with an adjustment made to equalize the shares of the other heirs under your estate plan.

In short, “payable on death” accounts and other direct methods to designate beneficiaries outside of your estate planning documents can be incredibly useful when used correctly. Unfortunately, it can also be downright counterproductive if they are not properly taken into account.

Reference: Forbes (August 9, 2013) When Payable On Death Accounts Backfire

For more information on asset preservation and estate planning, please visit my estate planning website.

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.