Setting Up a POD Account

What is a Payable on Death (POD) Account?

A Payable on Death (POD) account is a type of bank account or investment account that allows you to name one or more beneficiaries. Upon your death, the assets in the POD account transfer directly to the named beneficiaries, bypassing the often lengthy and costly process of probate.

POD accounts are straightforward tools that provide an easy way to ensure designated beneficiaries receive your assets without having to go through the court system. The beneficiary you name has no rights to the funds until after your death.

Benefits of Setting Up a POD Account

There are several key advantages to setting up a POD account:

• Avoid Probate - Assets pass directly to named beneficiaries, allowing your loved ones to access the funds relatively quickly without lengthy probate proceedings.

• Easy to Set Up - POD accounts are simple to establish, just requiring you to fill out a straightforward designation form with the bank or institution.

• Retain Full Control - You maintain complete ownership and control over the POD account during your lifetime. Beneficiaries have no rights until after your death.

• Revocable - You can change the beneficiary designations on the account at any time before your death.

• Inexpensive - POD accounts involve very little cost beyond basic account fees from the financial institution.

While POD designations provide an easy way to directly transfer assets, they should be part of a comprehensive estate plan that includes other tools like wills and trusts. But for basic liquid assets, POD accounts offer simplicity.

What Accounts Can Have POD Designations?

Most types of bank accounts and investment accounts can potentially be designated as POD accounts. Common examples include:

• Checking accounts
• Savings accounts
• Money market accounts
• Certificates of Deposit (CDs)
• Retirement accounts like IRAs
• Non-retirement investment/brokerage accounts

However, certain retirement accounts like 401(k)s already require you to name beneficiaries by default, so a POD designation would not apply.

One advantage is that you can name a POD beneficiary on just a portion of an account instead of the entire balance if you wish. Many people set up POD designations specifically for accounts intended to cover final expenses like funeral costs, debts, etc.

How to Set Up a POD Account

Setting up a new POD account is very straightforward:

1. Open the Account - Go through the normal process of opening a new bank account, CD, investment account etc. This can usually be done online, by phone, or in person.

2. Request POD Designation - When opening the account, inform the bank/institution you want to add the Payable on Death designation. They should provide a POD beneficiary form.

3. Name Your Beneficiary(ies) - Clearly print the full legal name(s) of your intended POD beneficiary(ies) on the form. You'll need their Social Security Number or Tax ID as well.

4. Sign the POD Agreement - Read and sign the POD designation agreement provided by your financial institution. This will make your beneficiary elections official.

To add a POD to an existing account, contact your bank and request a new signature card including the POD designation. The bank will have you fill out and sign the required beneficiary forms.

Designating Single vs Multiple Beneficiaries

When establishing a POD account, you can choose to name:

• A single beneficiary
• Multiple, equal beneficiaries (who will split the assets)
• Multiple beneficiaries with percentages assigned

Most institutions allow married couples to name each other as the primary POD beneficiary on joint accounts. Then contingent beneficiaries can be listed to receive the assets if the primary beneficiary also passes away.

It's important to carefully verify all beneficiary names are accurate when designating them on the forms. Misspelled names or missing details could create hiccups in the asset transfer process.

Changing Beneficiary Designations

One of the advantages of POD accounts is that your beneficiary designations are revocable - you can change them at any time before your death.

To change your POD beneficiaries:

1. Contact Your Financial Institution - Let them know you need to update the POD designation on your account(s).

2. Complete New Beneficiary Forms - You'll need to fill out and submit new POD beneficiary designation forms with your updated desired beneficiary(ies).

3. Sign New POD Agreement - Review and sign the new POD agreement, which will replace the previous one on file.

It's a good idea to review your beneficiary designations periodically or after major life events (marriage, divorce, births, deaths etc). Outdated beneficiaries can create hassles and unintended results.

Tax Implications for POD Account Beneficiaries

For the beneficiary receiving funds from a POD account, there can be some potential income tax implications:

• POD assets from standard bank accounts, CDs, etc. are not subject to income tax upon receipt. The funds were after-tax dollars.

• However, inherited POD assets from retirement accounts like IRAs and 401(k)s are treated as income distributions. Beneficiaries generally have to pay income tax on these funds.

• Beneficiaries do not have to pay any estate or inheritance taxes when receiving POD assets. The assets transfer outside of probate.

It's advisable for beneficiaries to consult a tax professional to understand any specific tax obligations from inherited POD accounts. Proper tax planning can help minimize liabilities.

Required Documentation from Financial Institutions

When establishing a POD account, banks and financial institutions will require you to complete their specific POD beneficiary designation forms.

This paperwork ensures there is a clear legal record naming the intended beneficiaries to receive the POD account assets upon the death of the account owner(s). The POD forms include important details like:

• Names and identifying information of account owner(s)
• Names, birth dates, Social Security numbers of beneficiaries
• For multiple beneficiaries, specified percentages or equal shares
• Signature(s) and date on the POD agreement itself

Institutions keep these POD forms as legal records so the proper beneficiaries can claim the accounts later. Be sure to carefully review and complete all requested details on the forms.

Wrapping Up - Getting Started with a POD Account

Payable on Death (POD) accounts provide an accessible, straightforward way to directly transfer assets to beneficiaries while avoiding the probate process. By taking just a few simple steps, you can establish POD designations that support your broader estate planning goals.

To get started with setting up a POD account:

1. Gather Beneficiary Details - Decide who you want to receive which accounts and have their full legal names, birth dates, Social Security numbers etc. ready.

2. Contact Financial Institutions - Reach out to your bank(s), investment firm(s), or open new accounts and request POD designation paperwork.

3. Complete POD Designation Forms - Carefully fill out all forms, attach necessary supporting documents, and submit to officially name the beneficiaries.

4. Review Designations Periodically - Every few years, or after major life events, review your POD accounts and update beneficiary information as needed.

With proper POD designations in place, you can have peace of mind that your assets will efficiently transfer to your intended beneficiaries after you pass away. It's an easy, revocable way to plan ahead.

For more detailed information on setting up POD accounts, check out these resources from the American Bankers Association. And as always, consult legal/estate planning experts regarding your specific situation.