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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How Does a Special Needs Trust Work?

Special Needs Trusts hold assets for an individual using government benefits to provide for them without losing the benefits.

Clients uses trusts for a lot of reasons, including probate avoidance, creditor protection, privacy and smooth and efficient estate administration.   Some trusts, such as Special Needs Trusts (aka Supplemental Needs Trusts) are used specifically to maintain government benefits for the beneficiary while still providing for their needs.  Not using the right type of trust can lead to financial devastation explains the article “Take special care with Special Needs trusts” from the Herald Bulletin.

The purpose of a Special Needs Trust is to help people because they have a disability and are or may be supported by government benefits.  Most of these benefits are means-tested, meaning, a beneficiary’s eligibility is dependent upon their income, assets or potentially both.  The rules regarding the benefits are very strict. An inheritance may disqualify a person with a disability from receiving these benefits, possibly putting them in dire circumstances.

However, clients may still want to provide for that loved one, and the Special Needs Trust is the way to do it.  The value of assets placed in a Special Needs Trust does not count against the benefits.  However, this area of the law is complex, and requires the help of an experienced elder law estate planning attorney. Mistakes could have lifelong consequences.

The trustee manages assets and disperses funds on a discretionary basis.  Selecting a trustee is extremely important, since the duties of a Special Needs trust could span decades. The person in charge should be ready to work with competent advisors who are familiar with the government programs and benefits and who can advise the trustee of the consequences of disbursements.

These are just a few of the considerations for a trustee:

  • How should disbursements be made, balancing current needs and future longevity?
  • Does the request align with the rules of the trust and the assistance program requirements?
  • Will anyone else benefit from the expenditure, family members or the trustee? The trustee has a fiduciary responsibility to protect the beneficiary, first and foremost.

Parents who leave life insurance, stocks, bonds, or cash to all children equally may be putting their Special Needs child in jeopardy.  What’s more, children who try to provide for their parents often don’t consider that their parents may require governmental assistance at the end of their lives such as long term Medicaid.  Well-meaning family members who wish to take care of their relative must be made aware of the risk of leaving assets to an individual with disabilities, and in fact, good planning suggests including contingent Special Needs Trusts in your estate planning documents.  After all, a loved one might not have a disability when you create your estate plan, but they might by the time they receive from your estate plan.

An experienced elder law or estate planning attorney will be able to create a Special Needs trust that will work for the individual and for the family and can advise you how to include such planning in your estate documents.

Reference: Herald Bulletin (March 13, 2021) “Take special care with Special Needs trusts”

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Can I Revoke a Power of Attorney?

I wanted to cover something of a follow-up to last week’s blog entry entitled Why Won’t My Power of Attorney Work which you can find here: https://www.galliganmanning.com/why-wont-my-power-of-attorney-work/.  In that article I talked about limitations to powers of attorney and scenarios when they won’t work or at least not well.  In this article, I want to briefly address how to revoke a power of attorney.  The recent article from nwi.com entitled  “Estate Planning: Revoking a power of attorney” also addresses this topic.

A Power of Attorney (POA) is a document that allows another person to act on your behalf. The person designated is referred to as the “Attorney in Fact” or the “Agent.”  However, sometimes a family faces difficulty because the choice of agent no longer makes sense, or perhaps was only needed for a brief time.  Even worse, the family may determine the agent is a bad actor whose authority needs to end.

If the creator of the POA wants to revoke it, they have to do so in writing.  They should also identify the person who is to be revoked as the POA and must be signed by the person who is revoking the POA.

Here’s the tricky part: the agent has to know it’s been revoked.  Unless the agent has actual knowledge of the revocation, they may continue to use the POA and financial institutions may continue to accept it.  If you are revoking a power of attorney because the agent isn’t suitable or a bad actor, you have a problem.  You can’t slip off to your estate planning lawyer’s office, revoke the POA and hope the person will never know.

Another way to revoke a POA, and this is the preferred method, is to execute a new one. In most states, most durable POAs include a provision that the new POA revokes any prior POAs. By executing a new POA that revokes the prior ones, you have a valid revocation that is in writing and signed by the principal.

If you already had an acting agent and you created the new POA, send them a copy and retain proof that you did so to demonstrate they were aware of the new POA and new appointment.

If the POA has been recorded for any reason such as use in a real estate transaction, the revocation should reference that fact and should be recorded just as a new POA would be filed to replace the old one. If the POA has been provided to any individuals or financial institutions, such as banks, life insurance companies, financial advisors, etc., they will need to be properly notified that it has been revoked or replaced.

Two cautions: not telling the bad and having her find out after the principal has passed or is incapacitated might be a painful blow, with no resolution. Telling the person during lifetime and before there are issues is a good idea. A diplomatic approach is best: the principal wishes to adjust her estate plan and the attorney made some recommendations, this revocation among them, should suffice.

Talk with your estate planning lawyer to ensure that the POA is changed properly, and that all POAs have been updated.

Reference: nwi.com (March 7, 2021) “Estate Planning: Revoking a power of attorney”

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