There are two types of property at death: (1) probate property and (2) non-probate property. When you pass, a probate court will typically oversee the distribution of all your assets to your beneficiaries, or the “probate property”. However, the probate court typically does not oversee property distributed directly to your beneficiaries, or the “non-probate property”. Non-probate property goes to your beneficiaries without the probate court’s involvement or intervention.
This article will discuss one common type of non-probate property: payable on death (“POD”) accounts. Here, we will explain what POD accounts are, the advantages, and the limitations. Hopefully, this will allow you to create a more comprehensive estate plan and to gain some peace of mind that your loved ones will be protected and provided for when you pass.
A payable-on-death account is an account at a bank or financial institution with a designated beneficiary (or the “POD beneficiary”) who receives the account funds when the account owner dies. A POD account is not a separate type of account; it is an existing account that names a beneficiary.
You can often designate a POD beneficiary for accounts such as checking accounts, savings accounts, certificates of deposit, retirement funds, and investment accounts. For example, if you have a checking account, you can name your daughter as the POD beneficiary at the bank. After you pass away, your daughter can go to the bank and provide the necessary documentation. Then, the bank will give your daughter the funds available in the checking account directly to her, without the need for court involvement.
You can simply ask the institution to provide you with the forms to designate a POD beneficiary on your account. Each institution has its own form or requirements. However, accessing the form can usually be done online (through the institution’s portal), in person at a branch, or via email or mail.
Provide your beneficiary’s full legal name, contact information, and other details as requested by the institution. Some institutions require the beneficiary’s social security number, or if there are multiple beneficiaries, the percentage allocated to each beneficiary.
Sign the form according to the institution’s requirements (such as a wet signature or electronic signature). Submit the form according to the institution’s instructions (such as uploading it to a portal, in person, or by mail). Most POD designations are effective and on file quickly (typically, 1-2 business days for online submissions, the same or next business day for in-person submissions, and 3-10 business days for mail submissions).
It is important to verify that your designation is on file because until it is officially recorded in the institution’s records, the account funds could still default to your estate and not your intended beneficiary. You can verify that the designation is correct through the institution’s online portal or by requesting confirmation.
A POD designation on an account only allows for that account itself to bypass probate. Other assets may still require probate and court involvement. For example, let’s say you have a checking account and a savings account at the same bank. You only designate your daughter as the POD beneficiary of your checking account, but you do not designate anyone as the POD beneficiary of your savings account. At your death, your daughter will only directly receive the funds from that checking account. Your estate will receive the funds from the savings account and be probated because you did not designate a beneficiary. That’s why it’s important to designate a POD beneficiary for each account if you want someone to directly receive the funds in it.
A POD designation overrides any designation in your Will. When you designate a POD beneficiary, your financial institution will honor that designation because the designation is viewed as a “contract” between you and the institution. So, whoever is listed as the beneficiary on the institution’s records will receive the funds at your death, even if your Will says otherwise, and even if your Will was created after your designation.
Creditors can still go after POD funds if your estate lacks enough assets to pay existing debts. If your POD beneficiary also has creditors, the beneficiary’s creditors can also go after the POD funds upon your death.
If you are a joint-owner of an account, you will need to determine if the account is a joint account or a joint tenancy with right of survivorship (“JTWROS”). (You can verify this on a statement or deposit agreement.)
In Texas, a final divorce decree automatically revokes a former spouse as a beneficiary on a POD account (including JTWROS accounts) unless the final decree states otherwise or if the former spouse is redesignated as a beneficiary after the divorce is finalized. Still, it is important that you change your POD beneficiary with the financial institution to avoid any potential legal disputes.
You should exercise caution when it comes to designating the following individuals:
Because of the limitations and considerations mentioned, a POD designation is often just one of the tools used to transfer property at your death. You could use other non-probate transfers for different purposes, such as a Transfer on Death Deed for real property, a Beneficiary Designation for a Motor Vehicle, or a revocable living trust.
So, you may want to consider other tools to achieve your overall estate planning objectives. If you need help with auditing your POD designations or are concerned about potential gaps in your estate plan, we recommend that you contact a professional Texas attorney.
At Romano & Sumner, we will advise you on how to structure your estate plan to ensure that your loved ones are protected and provided for when you pass. We also offer probate administration services so that your loved ones will receive their inheritances as timely and with as little financial impact as possible. Contact us today.
Romano & Sumner, PLLC
