Advantages and Disadvantages of Payable on Death Bank Accounts

Payable on death bank accounts allow you to name a beneficiary on your bank account. When you die, the beneficiary has a right to the funds, and in most jurisdictions, the account won't be subject to probate proceedings. It's an easy way to transfer your assets after you die, but there are disadvantages to these types of accounts that you should be aware of.

Advantages of Payable on Death Bank Accounts

The main advantage of these accounts is the ability to avoid probate. You may not want your beneficiaries to wait for a probate court to dispose of your assets, which can take five months or longer. There's also the risk that your beneficiaries will become entangled in a legal battle in probate court. There are other advantages to payable on death bank accounts, including these:

  • You can eliminate probate fees, which may decrease the total amount left in the bank accounts, such as court and lawyer fees.
  • You can create separate accounts to leave to individual beneficiaries.
  • You can avoid complex legal alternatives, such as trusts.
  • You can cancel the accounts at will without legal hassle.
  • Bank accounts are insured for each beneficiary named on the accounts.
  • They’re easy to create. You simply fill out a form provided by the bank naming the beneficiary.
  • You can change beneficiaries easily and at any time.
  • Beneficiaries only have rights to the account after you die.
  • A beneficiary can get access to the bank accounts by providing a death certificate and avoid more complex methods of claiming your assets.
  • Some states allow beneficiaries to get funds after only a short waiting period.

These benefits may appeal to you because they amount to saving you time, money and hassle. Before you open an account, you should consider the disadvantages as well.

Disadvantages of Payable on Death Bank Accounts

The main risk you take in opening these accounts is that you’ll open one with a bank that might fail in the future. This may not have been a consideration in the past, but as more banks file for bankruptcy, it’s one you have to take seriously. Other disadvantages to consider are:

  • Bank interest is taxable.
  • Some banks charge service fees.
  • States can freeze bank accounts until estate taxes are paid.
  • Some states have a much longer waiting period than others.
  • You cannot name alternate beneficiaries, which is important if the named beneficiary dies prior to your death or at the same time.
  • Courts still have to get involved if your children are minors when you die.
  • Your account may be worthless if you try to disinherit a spouse or don't leave enough assets elsewhere for your spouse in accordance with state laws.
  • Some banks require the consent of the beneficiary if you want to cancel or change the account.
  • A bank may divide the account equally among your named beneficiaries, regardless of what you intended.

You should work with an estate-planning attorney to weigh the advantages with the disadvantages in light of your other options for estate planning and avoiding probate.

The rules for payable on death accounts vary according to state laws as well as financial institutions. Ask your bank detailed questions before opening an account so that you know what to expect.










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