Payable on death accounts may sound like a simple way to pass assets to your heirs. However, there are numerous reasons why payable on death (“POD”) accounts do not provide a comprehensive estate planning solution.
When you open up a bank account or brokerage account, you may be offered a payable on death option. With these accounts you add a beneficiary, and this individual would assume ownership of any funds left in the account at the time of your death.
If you are presented with this option when you are not of the mind to be comprehensively planning your legacy, you may go ahead and name a beneficiary just in case.
Because people are prone to procrastination when it comes to estate planning, the fact that you have some type of contingency in place may stoke the embers of this procrastination. But in fact, payable on death accounts are not going to be sufficient to cover all your bases.
These accounts don’t provide you with any incapacity provisions, so if you were to become incapacitated your beneficiary would have no access. Additionally, in many cases you cannot allow for different percentages to go to different beneficiaries, if the institution will allow for multiple beneficiaries at all.
Other issues can also arise with POD accounts. For example, if a married couple has set up a POD account and has a blended family, if the husband were to pass first, the wife could change the POD beneficiaries to remove her husband’s children and could update the POD beneficiary to include only her child, thereby completely excluding the deceased husband’s heirs. Alternatively, if the wife were to pass first and the husband were to get remarried, the husband could remove the wife’s children as the POD beneficiary and could instead name his new wife as the POD beneficiary.
Another problem that can occur would be if a POD account owner passes away, and their POD beneficiary predeceased them, then the POD account may have to be probated.
Estate planning is no different than anything else; there is no “express lane” that allows you to provide for your loved ones optimally without engaging professional assistance. Indeed, the first step toward crafting a suitable legacy is to sit down and discuss your future with a licensed, experienced San Jose estate planning attorney.