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Estate Planning

POD Accounts as an Alternative to a Trust

Advantages include avoiding the cost and time associated with probate, and the ability to set up a POD account without the help of a lawyer.

While revocable trusts appear to be the soup du jour for most estate plans, a reasonable alternative in simple estate plans is a combination of beneficiary designations on accounts ("POD" or "payable on death" accounts), beneficiary deeds, and designated beneficiaries for life insurance and IRAs/401(k)s.

A POD account is a depository account set up with a financial institution, in which you designate the person or persons who are to receive the proceeds of the account upon your death; that is, the account is "payable on death" to a specific person or persons. The beneficiary of the account can be changed at any time. The designated people do not acquire an interest in the account until your death. POD accounts are usually combined with similar instruments such as a "beneficiary deed" for real property, a designation of beneficiary for life insurance policies, a designation of beneficiary for IRA, 401(k) and other forms of pension plans, medical powers of attorney, a financial power of attorney and a Last Will and Testament.

The chief advantage to this form of estate planning is to avoid the cost and time involved in a probate because these types of ownership pass by contract right with the bank at the time of death. Another advantage is that a person usually does not need the services of an attorney when setting up the accounts.

The POD approach is particularly useful in those situations where there is one residence, one bank account and a number of related beneficiaries, i.e., children, none of which are minors. In this situation, a recorded death certificate is sufficient to change the title to real property. Providing the bank or financial institution with a death certificate will suffice to have the bank release the bank accounts to the designated beneficiaries. The same is true for life insurance policies and IRAs.

The most common use of this type of estate plan is for a parent/child situation. The parent can name the children as the beneficiaries to receive the house on the parent's death and to receive the bank accounts. In these situations, there are usually no debts outstanding to pay, or if they are, the beneficiaries can agree to take care of the debts without having to open a probate.

Payable-on-death accounts do a good job of transferring property at death, but they are useless if you become incapacitated. In that case, you need someone who can obtain access to your funds to provide for your needs. This can be accomplished by adding an additional name to your bank account, but even this has limitations. First, by putting their name on your account, your funds get tied up in their potential problems. If that person is successfully sued, the judgment creditor may attempt to collect the judgment out of your funds and while this can be defeated, it is an almost certainty that an attorney will be required in order to extricate you from their problems. Secondly, the designation of a person to be on your account only operates as to that account.

 
          

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