A POD is commonly referred to in banking as “Payable on Death.” It simply means that you name a person or multiple people as the beneficiary of your bank account (similar to the beneficiary of your life insurance policy). But how does it work?
Let’s say you have $2,000.00 in your checking account and name your sister, Mary McSmart, as your POD beneficiary. Mary does not own the account and cannot withdraw money from it while you're alive, unlike a joint account holder. Her rights to the funds generally take effect only after you pass away.
So, what happens to the money in your account when you die?
If you had notnamed Mary as a POD beneficiary, the funds could potentially have to go through the probate process before Mary could receive them, depending on your circumstances, if there was a will naming Mary as your intended beneficiary for that account, and other factors. Probate can be a lengthy and expensive process.
By naming Mary as your POD beneficiary, you can generally avoid probate for that particular account. After your death, the bank can follow your beneficiary designation and release the funds to Mary once she provides the required documentation, such as a death certificate and identification. There are still steps Mary would need to complete before the bank releases the money, but the process is generally much simpler and faster than going through traditional probate. Depending on personal circumstances faster access to such funds may be an important financial planning tool for families who suffer a sudden loss.
A POD is not available for all type of assets, however, where there is an opportunity to name a POD beneficiary, it may be worth considering that action.
Do you need a POD? Not necessarily, but it can be a simple way to make sure your bank account passes directly to the person you choose after your death in the most expedient manner.
This article is for general information only and is not intended as and does not constitute legal advice or solicitation of a prospective client. It should not be relied on for legal advice in any particular factual circumstance.