James R. Balmforth: Payable on Death Beneficiary for Accounts

Planning your estate doesn’t have to be expensive or complicated. You can transform your bank accounts into an estate planning tool by designating a beneficiary for your checking, savings and other deposit accounts. Simply ask your banker for their payable on death (POD) beneficiary form.

POD accounts function like an informal trust. Some banks even refer to these accounts a Totten or tentative trusts. After your death, the account beneficiary avoids probate and can claim the money directly from your bank. During your lifetime, the beneficiaries have no rights to the account. You can spend the money, close the account or change your beneficiaries. The account will function just as it did before you listed a beneficiary.

Who Can be Your Beneficiary

The beneficiary rules for POD accounts are very flexible. You can choose to have one beneficiary for several accounts or multiple beneficiaries for one account. Nonprofit organizations can serve as your beneficiary. Just be certain they are recognized as a charitable entity by the Internal Revenue Service. Depending on the laws of your state, you may be able to designate an alternate beneficiary, in case your first named beneficiary dies before you. If there are no living beneficiaries at the time of your death, the account will pass through probate.

What Accounts Can Have a Beneficiary

You can name a POD beneficiary for your checking and savings accounts, money markets, CDs and U.S. Savings Bonds. But you will probably need to complete a beneficiary registration form for each account. Joint accounts, such as held by a married couple, can also be transferred into POD account. The beneficiary will only receive rights to the assets after the last account owner dies.

Stocks and other securities can be transferred by setting up transfer on death (TOD) registration on the account. Most states have adopted the Uniform TOD Security Registration Act, but brokerage firms can still choose not to offer TOD registration.

How Do You Claim A POD Account?

Claiming a POD account is a straightforward process. The beneficiary goes to the bank or credit union holding the account and presents a copy of your death certificate. They will also need to show valid identification and fill out transfer forms. Some states have a short waiting period, but otherwise the beneficiary can claim the funds immediately.

TOD beneficiaries must take steps to re-register the securities in their names. This typically involves sending a copy of the death certificate and an application for re-registration to the transfer agent

Be aware, POD accounts are subject to outside claims. So you can’t use a POD account to avoid paying your debts or to disinherit a spouse. You must leave enough money in your estate to tie-up your affairs. Plus if you live in a community property state, your spouse has a right to half of your assets, including those only listed in your name.

Tax Issues with POD Accounts

After you die, estate or income taxes may be left owing. For example, if you are working at the time of your death, your estate administrator will file your last tax return. It is important that your will or living trust state if the POD account beneficiary is required to use funds to cover any tax liability.

Your beneficiary may also be subject to an inheritance tax depending on the laws of your state, and you family relationship. In most states, surviving spouses are exempt from inheritance tax. But unrelated individuals are frequently taxed on an inheritance.

Free Consultation with a Utah Estate Lawyer

If you are here, you probably have an estate issue you need help with, call Ascent Law for your free estate law consultation (801) 676-5506. We want to help you.