A payable on death account or POD account allows you to transfer money to someone else when you pass away without requiring those assets to go through probate. The individual or entity who collects those assets is called a POD beneficiary.
What does POD mean in banking? Broadly speaking, there are a number of deposit accounts that can be deemed payable on death, including checking and savings accounts.
If you’re considering establishing one of these accounts, it’s important to understand how POD accounts work, and if you are a beneficiary, it’s also helpful to know when and how you’re entitled to withdraw money from a payable on death bank account. Read on to learn:
• What does POD mean in banking?
• What are POD bank account rules?
• What are the pros and cons of POD accounts?
Payable on Death Accounts Explained
A payable on death account pays out assets to a beneficiary when the account owner passes away. You may also hear POD accounts referred to by other names, including:
• Totten trust
• Tentative trust
• In trust for account
• Revocable bank account trust
• Informal trust
When you create a payable on death account you can decide how many beneficiaries to add and who to name.
Examples of POD beneficiaries can include:
• Adult children
• Siblings
• A non-profit
• A trust
Worth noting: If you co-own the account with someone else, they cannot be named as a POD beneficiary.
Payable on Death Rules
Payable on death accounts have certain rules that set them apart from other accounts. The most significant rule concerns when beneficiaries can access the money in the account. Here are some details to know:
• If you open a POD bank account, you have full control over the money in the account during your lifetime. Even if you name 10 beneficiaries to the account, those beneficiaries cannot lay claim to any of the funds in it until you’ve passed away.
• In terms of how the money in a payable on death bank account is divided, each beneficiary receives an equal share. So if you have $100,000 in a savings account when you pass away and that account has four POD beneficiaries, each one would receive $25,000.
• Note that state law may limit the number of beneficiaries you can name to a payable on death account. Your depository institution may have additional rules for POD accounts.
Types of Accounts That Can Be Payable on Death
There are a number of account types that can be established as POD accounts. Your options can include:
• Checking accounts
• Savings accounts
• Certificate of deposit (CD) accounts
• Individual Retirement Accounts (IRAs)
• Investment accounts
You can make a bank account that you own by yourself or with someone else a POD account, though again note that the co-owner could not be listed as a POD beneficiary.
In terms of what accounts cannot be POD, the list includes small business and commercial bank accounts as well as safety deposit boxes.
Credit accounts are not POD accounts either, since there are no assets to leave behind. In terms of what happens to credit card debt when you die, it can become the responsibility of your spouse or your estate, depending on where you live.
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Payable on Death vs Beneficiary
Payable on death refers to a specific type of financial account that’s used to pass assets to someone else. The term “beneficiary,” however, is used to refer to an individual or entity that’s entitled to inherit assets from someone else. POD beneficiaries fall under the larger beneficiary umbrella.
Similarities
Here are some ways in which POD accounts and beneficiaries are the same. When you name a payable on death beneficiary, you’re telling your bank that you want that person or entity to receive money from the account when you pass away. In a sense, that’s no different from naming a beneficiary to a 401(k) plan or a life insurance policy. Your life insurance beneficiary, for example, is entitled to receive a life insurance death benefit from the policy when you die.
Payable on death beneficiaries and life insurance or retirement plan beneficiaries are not entitled to any money during your lifetime. They can’t access your bank account, withdraw money from your 401(k), or cash in your life insurance. But they all stand to benefit financially from your passing in some way.
Additionally, assets that have a named beneficiary are not subject to probate. So, if you open a Roth IRA and name your spouse as the beneficiary, they’d have access to the money in the account when you pass away. The same is true with regard to life insurance.
Differences
The main difference between payable on death accounts and other beneficiary accounts lies in what’s being passed on. With POD accounts, you’re typically talking about bank accounts. So you might leave your checking account or savings account to your children after you’re gone.
As mentioned, you can name beneficiaries for other types of assets such as a 401(k), IRA, investment account, or life insurance policy.
There can also be differences between payable on death accounts and other beneficiary accounts with regard to taxation. Someone who inherits a POD account may owe estate taxes, for instance, whereas life insurance proceeds are typically income and estate tax-free. (Determining how to allocate one’s funds and the tax burden that will result can be an important part of estate planning.)
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Pros and Cons of POD Accounts
Payable on death accounts can offer advantages and disadvantages. It’s helpful to weigh both sides before opening one.
Here’s an overview of the main pros and cons of POD accounts.
| Benefits | Drawbacks |
|---|---|
| You retain control of the account and the assets in it during your lifetime. | Beneficiaries would not be able to access funds if you were to become incapacitated. |
| Payable on death accounts are not subject to the probate process. | Your bank may require you to close a POD account in order to choose a new beneficiary. |
| Depending on state law, you may be able to name multiple beneficiaries. | State law may restrict the number of POD beneficiaries you can name. |
| Removing POD accounts from probate can allow beneficiaries to access funds quicker. | It can be complicated for estate executors to access funds to settle a larger estate using POD deposits. |
Payable on Death Account vs Trust
A POD bank account differs from a trust in a couple of key ways.
• In a typical trust arrangement, the trust creator or grantor transfers assets to the control of a trustee. The trustee manages those assets on behalf of one or more named beneficiaries. Assets held in trust are not subject to probate when the trust grantor passes away.
Probate is a legal process in which someone’s assets are inventoried, outstanding debts are paid, and remaining assets are distributed according to the terms of the decedent’s will. Dying without a will in place means assets would be distributed according to state inheritance laws.
• In a Totten trust or POD bank account, there’s no trustee. However, by designating an account as payable on death you can still remove the assets in the account from probate. That’s an advantage, as probate can be both lengthy and time-consuming.
The Takeaway
You might consider a payable on death account if you’d like to pass assets on to loved ones with minimal fuss. That could be helpful if you’d like to make sure they have easy access to cash to cover funeral and burial expenses or any basic living expenses after you’re gone.
Regardless of whether you opt for a POD account or not, choosing the right bank matters. With a SoFi Checking and Savings account, you’ll spend and save in one convenient place. You’ll earn a competitive annual percentage yield (APY) and pay no account fees, which can help your money grow faster.
FAQ
What does payable on death mean?
Payable on death means that money in account is payable to one or more beneficiaries when the original account owner passes away. A payable on death bank account allows beneficiaries to receive funds without having to go through the probate process.
Is a POD on a bank account a good idea?
Adding POD beneficiaries to a bank account could be a good idea if you’d like to make sure the money in the account goes to whom you want it to after you pass away. You could also choose to set up a payable on death bank account simply to allow those assets to bypass the probate process after you’re gone.
What is the difference between a pay on death and a beneficiary?
Payable on death is a designation that applies to bank accounts and other financial accounts. A beneficiary is someone who’s named to receive money from a bank account, retirement account, or other asset, such as a life insurance policy. A POD account can have one or more beneficiary designations.
Photo credit: iStock/bob_bosewell
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