What
is a payable on death (POD) account?
A bank account can be designated as payable on death to
someone of your choice. The bank pays these funds to this person almost
immediately at your death, and the funds will generally not be subject to
probate.
The payable on death designation is very simple and
flexible. You can change the designation until your death and the individual
you designate has no right to the money until your death. Indeed, the
individual will not receive the account unless he or she outlives you. A POD
designation can also be used with U.S. savings bonds.
A typical bank account would be subject to probate at
your death. Property subject to probate generally incurs fees, such as
attorney's fees, and the transfer of probate property may be subject to delays
of one to several years. A POD account usually avoids probate, and the named
beneficiary can generally access the funds immediately after your death,
without significant delays.
The requirements for a POD account may vary somewhat
under state law, and state laws determine what is subject to probate. Ask
your bank, attorney, or financial advisor to make sure that the account won't
be subject to probate. A POD designation used with appropriate U.S. savings
bonds will not be subject to probate in any state.
You do not make a gift for gift tax purposes when you
name the beneficiary of a POD account. You remain subject to any income tax on
funds in a POD account while you are alive. And funds in a POD account are
subject to estate tax upon your death. Of course, if your spouse is the named
beneficiary, the funds would qualify for the estate tax marital deduction. If
the named beneficiary is two or more generations younger than you (e.g., a
grandchild), the funds may also be subject to generation-skipping transfer
(GST) tax at your death. Substantial exemptions ($5,250,000 in 2013) are
available to protect property from estate tax or GST tax.
A similar provision, transfer on death (TOD), is
available for the transfer of stocks, bonds, and mutual funds to a named
beneficiary at your death.
