What Is a POD Account?

Also called a “POD” account, a payable on death account can be created at a bank or credit union and is transferable without probate at your death to the person you name.  We frequently utilize these types of accounts as part of a larger, comprehensive estate plan.  So, I wanted to provide some information about what these accounts are and how to use them.

Sports Grind Entertainment’s recent article entitled “Payable on Death (POD) Accounts” explains that there are different reasons for including a payable on death account in your estate plan. You should know how they work and very critically, how it works with your greater estate plan, when deciding whether to create one. Talk to an experienced estate planning attorney who can help you coordinate your investment goals with your end-of-life wishes.

The difference between a traditional bank account and a POD account is that a POD account has a designated beneficiary. This person is someone you want to receive any assets held in the account when you die. A POD account is really any bank account that has a named beneficiary.

There are several benefits with POD accounts to transfer assets. Assets that are passed to someone else through a POD account are not subject to probate. This is an advantage if you want to make certain your beneficiary can access cash quickly after you die. Even if you have a will and a life insurance policy in place, those do not necessarily guarantee a quick payout to handle things like burial or funeral expenses or any outstanding debts that need to be paid. A POD account could help with these expenses.

Know that POD account beneficiaries cannot access any of the money in the account while you are alive. That could be an issue if you become incapacitated, and your loved ones need money to help pay for medical care. In that situation, having assets in a trust or a jointly owned bank account could be an advantage. You should also ask your estate planning attorney about a financial power of attorney, which would allow you to designate an agent to pay bills and the like in your place.

We often utilize POD account designations so that bank accounts can be transferred to a trust upon death.  This is provides for bank accounts to avoid probate on an account while still directing the assets to a trust which spells out your wishes for your assets.  This avoids the need to close and open new accounts in many situations.

One thing I would stress however, is that many people suggest POD accounts as a way to avoid probate so that an estate plan is not necessary.  Without elaborating, every case in which I’ve ever encountered this has been a disaster.  A POD account is not an estate plan substitute, it is a tool in the tool box.

Similarly, bankers often suggest these accounts to clients as a probate avoidance tool.  That has it’s merits of course, but what if you are using a will-based estate plan?  If so, adding beneficiaries actually removes these accounts from your estate plan, and often creates problems for the executor or beneficiaries.

If you are interested in creating a payable on death account, the first step is to review your estate plan and talk to your estate planning attorney about the effect such an account will have on your assets.

Reference: Sports Grind Entertainment (May 2, 2021) “Payable on Death (POD) Accounts”

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Protecting Inheritance from Child’s Divorce

Parents are often (maybe not always) excited when their children marry.  It’s exciting to see their adult child find a spouse, build a home, settle down and maybe think about grandchildren down the road.  However, even if the parent adores the person their child loves, it’s wise to prepare to protect our children with our plans now, says a recent article titled “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer” from Kiplinger.  After all, things happen and sometimes relationships don’t go the way we expect.  Protecting inheritance through prudent planning will keep the inheritance with your child if they divorce.

With the federal estate tax exemptions so high (although that may change in the very near future), planners were able to focus on other concerns in estate plans, not just taxes.  A more applicable concern for most people was how well your children will do, if and when they receive their inheritance.

Some people recognize that their children are at risk. They worry about potential divorces or a spendthrift spouse. The answer is estate planning, and more specifically, a well-designed trust. By establishing a trust as part of an estate plan, you can better protect inheritance.

If an adult child receives an inheritance and commingles it with assets owned jointly with their spouse—like a joint bank account—depending upon the state where they live, the inheritance may become a marital asset and subject to marital property division, if the couple divorces.  This is the reason these types of trusts are so important. It’s like putting the toothpaste back into the tube, you put these assets back into a protected trust once it’s owned by the child.

If the inheritance remains in a trust account, or if the trust funds are used to pay for assets that are only owned in the child’s name, the inherited wealth can be protected. This permits the child to have assets as a financial cushion, if a divorce should happen.

Placing an inheritance in a trust is often done after a first divorce, when the family learns the hard way how combined assets are treated. Wiser still is to have a trust created when the child marries. In that way, there’s less of a learning curve (not to mention more assets to preserve).

Here are three typical situations for protecting inheritance:

Minor children. Children who are 18 or younger cannot inherit assets. However, when they reach the age of majority, they legally can. A sudden and large inheritance is best placed in the hands of a trustee, who can guide them to make smart decisions and has the ability to deny requests that may seem entirely reasonable to an 18-year-old, but ridiculous to a more mature adult.  You can also set a more reasonable age for the beneficiary to take over their trust, such as 25 or 30.

Newlyweds. Most couples are divinely happy in the early years of a marriage. However, when life becomes more complicated, as it inevitably does, the marriage may be tested and might not work out. Setting up a trust after the couple has been together for five or ten years is an option.

Marriage moves into the middle years. After five or ten years, it’s likely you’ll have a clearer understanding of your child’s spouse and how their marriage is faring. If you have any doubts, talk with an estate planning attorney, and set up a trust for your child.

Estate plans should be reviewed few years, as circumstances, relationships and tax laws change. A periodic review with your estate planning attorney allows you to ensure that your estate plan reflects your wishes and that it is protecting inheritance for your loved ones.

Reference: Kiplinger (April 16, 2021) “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer”

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