A Payable on Death (POD) account is a simple yet effective estate planning tool that allows you to designate a beneficiary who will automatically inherit the funds in the account upon your death. This type of account can be a useful way to transfer assets outside of probate, ensuring that your loved ones receive their inheritance quickly and efficiently. An attorney at Thompson Law helps you understand how a Payable on Death account works and how one might fit into your overall estate plan to help you make informed decisions about the distribution of your assets after you are gone.
How Does a Payable on Death or Transfer on Death Account Work?
A POD account is a standard bank or credit union account, such as a savings account, checking account, or certificate of deposit (CD), with a designated beneficiary. A Transfer on Death (TOD) account is a similar legal tool used to designate a beneficiary who will receive an asset upon your death. When you open or modify an account, you can add a POD or TOD designation, which instructs the financial institution to transfer the funds directly to your named beneficiary upon your death. Until that time, the account remains solely in your name, meaning the beneficiary has no rights to the funds while you are alive.
This is one important way that a POD account differs from joint ownership. With joint ownership, your interest in an asset will transfer to co-owner(s) upon your death as well; however, your co-owner(s) also has a legal interest in the asset during your lifetime. With a POD account, you have full interest and control over the account up to the time of your death. Only after you pass away will the beneficiary gain control over the asset after providing a death certificate and identification to the financial institution. Because ownership automatically transfers, POD accounts bypass the probate process, which can save time and reduce administrative costs for your estate.
Benefits of Using a POD Account in Your Estate Plan
A comprehensive estate plan will incorporate numerous tools and strategies to help achieve your unique goals and objectives. For many people, a POD account offer several advantages when incorporated into an estate plan, such as:
- Avoiding Probate: One of the biggest benefits of a POD account is that it allows assets to pass directly to the named beneficiary without going through probate. Probate can be time-consuming, costly, and public, so avoiding it can make the transfer of assets much smoother.
- Immediate Access to Funds: Because POD accounts are not subject to probate delays, beneficiaries can access the funds relatively quickly. This can be particularly important for loved ones who may need immediate financial assistance following your passing.
- Simplicity and Flexibility: Setting up a POD account is straightforward and does not require an attorney. Additionally, you can change the designated beneficiary at any time without needing to revise a Will or trust.
- Protection from Creditors During Probate: While a POD account does not necessarily shield assets from creditors, it ensures that the funds do not become entangled in probate proceedings, which can sometimes delay distribution due to creditor claims against the estate.
Potential Drawbacks of a POD Account
Although POD accounts offer many benefits, they also come with potential limitations and risks that you should consider when deciding whether to incorporate one into your estate plan, such as:
- Limited Control After Death: Unlike a trust, a POD account does not allow for conditions regarding how the beneficiary uses the funds. If you are concerned about responsible money management, a trust may be a better option.
- Conflicts with a Will or Estate Plan: A POD designation overrides instructions in a Will. If your estate plan distributes assets differently than what is stated in a POD account, disputes among heirs could arise.
- Multiple Beneficiaries May Pose Challenges: If you have multiple heirs, dividing funds in a POD account can be complicated. Some banks allow multiple beneficiaries, but if one predeceases you, determining how the remaining funds should be distributed may become an issue.
- Estate Tax Considerations: While POD accounts avoid probate, they are still considered part of your taxable estate, which may be a factor if you have a large estate subject to estate taxes.
What Type of Assets Can Be Transferred Using a POD or TOD Designation in North Dakota?
A POD or TOD designation can be an excellent way to quickly and easily transfer some assets after your death. Not all assets, however, can be transferred using a POD or TOD designation. In North Dakota, assets that can be transferred using a POD or TOD designation include:
- Bank Accounts and Financial Accounts: One of the most common uses of a POD designation is for bank accounts, including checking accounts, savings accounts, and certificates of deposit. By naming a beneficiary on these accounts, the funds are transferred directly to the named individual upon the account holder’s death. This allows the beneficiary to access the funds without waiting for probate proceedings to be concluded. Similarly, other financial accounts, such as brokerage accounts or investment accounts, may include a TOD designation. With this designation, stocks, bonds, and other securities can be transferred directly to the designated beneficiary upon the account holder’s death. This avoids the potential delays and expenses associated with probate.
- Retirement Accounts and Life Insurance Proceeds: Although retirement accounts, such as an IRA or 401(k), are not typically classified as POD or TOD accounts, they do function similarly in that the owner designates a beneficiary to receive the funds after death. The same applies to life insurance policies, where the policyholder designates a beneficiary who will receive the policy’s proceeds upon death. Because these assets pass directly to the named beneficiary, they do not become part of the probate estate unless no beneficiary is named, or the estate is designated as the beneficiary.
- Real Estate: North Dakota allows the use of a Transfer on Death Deed (TODD) for real estate. This type of deed permits property owners to name a beneficiary who will automatically inherit the property upon the owner’s death. Until that time, the owner retains full control of the property and can sell, mortgage, or revoke the designation if desired. Unlike joint tenancy, which immediately grants the co-owner an interest in the property, a TODD does not give the beneficiary any rights until the owner’s death.
- Motor Vehicles: In North Dakota, a vehicle owner may use a TOD designation to transfer ownership of a car, truck, or other titled vehicle to a named beneficiary upon death. This process is handled through the North Dakota Department of Transportation and allows for the seamless transfer of the vehicle title without requiring probate.
Do You Have Additional Questions about How a Payable on Death Account Fits into Your North Dakota Estate Plan?
Please join us for an upcoming FREE seminar or webinar. If you have additional questions about how a Payable on Death account fits into your North Dakota estate plan, contact the North Dakota estate planning attorney at Thompson Law by calling 605-362-9100 to schedule an appointment.
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