A payable-on-death (POD) bank account is no more than a regular bank account that you've chosen to leave to a designated person after your death. All you need to do to make it a POD account is fill out some very simple paperwork at your bank or credit union designating a POD beneficiary. (Some institutions offer an account that's called a Totten trust, which works basically the same way but is set up in a slightly different manner: the account is opened in your name "as trustee" for someone else.

While you're alive, the account's beneficiary has no right to the money. If you want to change your beneficiary designation, you simply name a different beneficiary on a new bank form. Upon your death, the named beneficiary automatically owns the account; no probate is necessary to transfer the asset.

A transfer-on-death registration (TOD), like a POD bank account, lets you designate a beneficiary for stocks, bonds, and mutual funds in most states. And as with the POD account, the beneficiary has no right to the assets while you're alive. After your death, the assets are transferred directly to the beneficiary without probate.

If you own stocks or bonds, it's likely that you hold them in a brokerage account, as opposed to having actual stock certificates in your possession. In that case, you'll get the paperwork from the financial institution holding your account – if they offer it. Every state except Louisiana and Texas has adopted the Uniform Transfer-on-Death Securities Registration Act which permits TOD registration (also often known as "beneficiary registration.") But even if you live in Louisiana or Texas, you may be able to register your stocks as TODs if either you or the stock issuer has any connection to a state that's passed the law. Unfortunately, however, just because TOD registration is allowed virtually everywhere doesn't necessarily mean that your broker will offer it. The law doesn't require them to do so; it simply gives them the option.

If you own and actually possess stock certificates (which is rare nowadays), you'll need to have new certificates issued showing that you own the stock in beneficiary form. Or you could simply transfer your stock to a brokerage account that offers the registration and name a TOD beneficiary there.

Naming a beneficiary for your bank or stock accounts has no bearing on the rights of creditors or the IRS. Although you've designated a new owner, the executor of your estate must still pay all of your estate's outstanding debts and expenses. If necessary, the beneficiaries may have to use some of the accounts' assets toward that end.

POD accounts also offer an additional unexpected benefit: they allow you to cover more money under the FDIC insurance program for bank accounts than an individual account does. Normally, you can insure up to a total of $100,000 at one bank. But if you name POD beneficiaries, you can insure up to $100,000 for each "qualifying" beneficiary, which, under FDIC rules, includes your spouse, children, grandchildren, parents, and siblings.

Related Articles
blog comments powered by Disqus