Pay on death (POD) accounts, sometimes referred to as “transfer on death” (TOD) accounts, avoid probate. Probate is avoided because POD accounts have a beneficiary designation. Thus, there is a contract that says, “When I, Sam, die, I want my bank account to be transferred to my brother, Phil.” While Sam maintains control and ownership of the account during his lifetime, Phil gets the assets in the account when Sam dies.
Sam Can Change the Beneficiary of his POD Account any Time He Wants
So long as Sam has legal capacity, he can change the beneficiary of his POD account anytime he wants. He could even name a different beneficiary every day.
Can Phil Spend the Money in the POD Account during Sam’s Lifetime?
Absolutely not, unless Sam pulls the money out of the account and gives it to Phil. If this happens, a gift is made, and Phil can spend as he likes.
Can Phil Spend the Money in the POD Account after Sam’s Death?
Absolutely, after Sam dies, the money in the account belongs to Phil so long as he is still named as beneficiary when Sam dies.
Beware of Taking Estate Planning Advice from a Bank Employee
Often, quite often, bank employees dispense estate planning advice. They are not estate planning attorneys and they are not aware of the negative consequences of their well meaning advice. A POD account may not be appropriate.
- For example, when Sam names his brother Phil beneficiary, Phil is the only sibling that receives the asset. Sam may be disinheriting his other siblings, Ralph, Jake, and Mike, without realizing it, believing that Sam will divide up the money amongst all of them.
- If Sam wants the money to be used for his funeral, Phil may not follow his wishes. There is no legally binding agreement and Sam loses control.
- If Phil is in a nursing home or otherwise receiving governmental assistance when Sam dies, the assets in the POD account will likely disqualify him, which is a waste of family money and creates a hassle and additional legal fees.
- If Phil has a drug, alcohol, or gambling problem when Sam dies, the money in the POD account may make the problem worse or even kill Phil.
- Lastly, after Sam’s death, if Phil is being sued in divorce, bankruptcy, malpractice, business failure, or from a car accident, the POD account assets can be seized and taken from him.
Consult a San Diego Estate Planning Attorney
While a pay on death (POD) account may be useful in some situations, there are other ways to avoid probate. If avoiding probate is your goal, consult with a qualified estate planning attorney.
Please feel free to call our office at 858-792-5988 for a free consultation.