A payable on death account — commonly called a POD account — is a bank account that has a named beneficiary who automatically receives the account funds when the account holder dies. POD accounts are one of the simplest and most effective ways to transfer financial assets to heirs without going through probate and without the need for a will or trust.
POD designations are available on most types of bank accounts including checking accounts, savings accounts, money market accounts, and certificates of deposit. They are sometimes called Totten trusts after a famous legal case that established their validity.
How a POD account works
Setting up a POD designation is straightforward. The account holder contacts their bank and names one or more beneficiaries on the account. The beneficiary has no rights to the account funds during the account holder’s lifetime — the account holder retains complete control and can deposit, withdraw, close the account, or change the beneficiary at any time.
When the account holder dies the beneficiary simply presents a death certificate and proof of identity to the bank and the funds are transferred directly to them. No probate is required and the transfer typically happens within days.
Benefits of POD accounts
POD accounts offer several significant advantages as an estate planning tool:
- Probate avoidance — funds in a POD account pass directly to the named beneficiary without going through probate saving time, expense, and the public exposure of probate proceedings
- Simplicity — adding a POD designation requires nothing more than a simple form at your bank. No attorney is needed and there is no cost.
- Retained control — the account holder retains complete control of the account during their lifetime. The beneficiary has no access to the funds until the account holder dies.
- Speed — POD transfers are typically completed within days of death compared to months for probate
- Privacy — unlike probate which is a public process POD transfers are private
- Flexibility — the account holder can change or remove the beneficiary designation at any time
How POD accounts interact with your will
A POD designation overrides your will. If your will leaves your estate equally to your three children but your savings account names only one child as the POD beneficiary that child receives the entire savings account regardless of what the will says.
This is one of the most important things to understand about POD accounts — and beneficiary designations generally. Your will only controls assets that do not have a beneficiary designation or joint ownership arrangement. Keeping your POD designations coordinated with your overall estate plan is essential.
Naming multiple beneficiaries
Most banks allow you to name multiple POD beneficiaries on a single account. When multiple beneficiaries are named the account funds are typically divided equally among them unless you specify different percentages.
It is also possible to name contingent beneficiaries — secondary beneficiaries who receive the funds if the primary beneficiary has already died. Naming contingent beneficiaries helps avoid the situation where a primary beneficiary predeceases the account holder and the account must go through probate because no living beneficiary is named.
POD accounts and minor children
Naming a minor child directly as a POD beneficiary can create complications. Minor children cannot legally receive or manage large sums of money. If a minor is named as beneficiary a court may need to appoint a guardian of the property to manage the funds until the child reaches adulthood.
Better alternatives for leaving bank account funds to minor children include:
- Naming a custodian under the Uniform Transfers to Minors Act — UTMA — to manage the funds until the child reaches a specified age
- Naming a trust as the POD beneficiary with the child as the trust beneficiary
POD accounts and Medicaid
POD accounts are generally counted as countable assets for Medicaid eligibility purposes during the account holder’s lifetime because the account holder retains complete control and access to the funds. The POD designation itself does not affect Medicaid eligibility.
After the account holder’s death POD accounts pass directly to the named beneficiary and are generally not subject to Medicaid estate recovery in most states because they pass outside of probate. However Medicaid estate recovery rules vary by state and some states have expanded estate recovery to include non-probate assets. Consulting with an elder law attorney about Medicaid planning is advisable.
Transfer on Death (TOD) — the investment account equivalent
The investment account equivalent of a POD designation is called a transfer on death — TOD — designation. TOD designations work the same way as POD designations but are used on brokerage accounts and investment accounts rather than bank accounts.
In some states TOD designations are also available for vehicles and real estate. A TOD deed for real estate works similarly to a POD account — the owner retains full control during their lifetime and the property passes automatically to the named beneficiary at death without probate.
How to set up a POD designation
Setting up a POD designation on a bank account is simple:
- Contact your bank in person, by phone, or online
- Request a beneficiary designation form for your account
- Complete the form with the beneficiary’s full legal name, date of birth, Social Security number, and relationship to you
- Submit the completed form to the bank
- Keep a copy of the completed form for your records
- Confirm with the bank that the designation has been added to your account
Reviewing and updating POD designations
POD designations should be reviewed regularly — at least every few years and after any major life change such as marriage, divorce, the birth of a child, or the death of a named beneficiary. An outdated POD designation can result in account funds going to an unintended recipient such as a former spouse.
Key terms to know
- Payable on death account — POD — a bank account with a named beneficiary who receives the funds when the account holder dies without going through probate
- Totten trust — another name for a POD account based on a historical legal case
- Beneficiary designation — the named person or organization that receives an asset upon the account holder’s death
- Contingent beneficiary — a secondary beneficiary who receives the funds if the primary beneficiary has already died
- Transfer on death — TOD — the investment account equivalent of a POD designation
- Probate — the court-supervised process of validating a will and distributing an estate
- Uniform Transfers to Minors Act — UTMA — a law that allows property to be managed by a custodian for a minor until they reach a specified age
Sources
- American Bar Association — Public Resources
- Federal Deposit Insurance Corporation — fdic.gov
- USA.gov — Estate Planning
This article is for general informational purposes only and does not constitute legal or financial advice. Laws vary by state. Consult a licensed attorney or financial advisor for guidance specific to your situation.