Payable-on-Death (POD) Bank Account: Do You Need One?

A “payable on death” bank account, or POD, allows one or more beneficiaries to receive the account balance if the owner dies.

A POD bank account can help with estate planning and let your beneficiaries access their inheritance quickly without a complicated and time-consuming probate process.

What is a payable-on-death (POD) bank account?

A payable-on-death bank account allows you to name a beneficiary, or several, to receive the assets after you die. A POD simplifies the transfer process and avoids the need for including the account in a court-supervised estate settlement.

POD accounts are popular for a variety of reasons, including:

• Eliminating uncertainty and delay associated with probate, which is often a long and complex process
• Offering flexibility and convenience in assigning beneficiaries and changing them if needed
• Avoiding unnecessary delays and administrative costs in transferring the inheritance
• Providing some tax benefits, as a POD account is often exempt from estate taxes

How does a POD account work?

Payable on death (POD) just means the account has one or more beneficiaries. You can have a POD checking account, savings account, money market account, CD, IRA CD or investment account.

POD bank accounts are subject to the terms and conditions of the financial institution that holds them. Examples include:

• A bank or credit union may limit the number of beneficiaries that can be named, while others allow unlimited beneficiaries.
• At some credit unions, beneficiaries are named to the entire membership account, as opposed to individual checking or savings accounts.
• Some financial institutions offer equal shares to all named beneficiaries, while others allow the account owner to choose percentages.

Note that you’ll need each beneficiary’s basic personal information (legal name, birthdate, address and phone number). Banks are increasingly asking for Social Security numbers as well.

When it comes time for the beneficiaries to claim the funds, they’ll need to show a death certificate for the deceased and a government-issued ID matching the information on the beneficiary form.

How fast they get the money depends on how quickly the paperwork is processed by the financial institution.

The beneficiary designation on your POD bank account will generally override any conflicting instructions in your will. But note that POD accounts can be subject to creditors’ claims, if the deceased leaves behind debts.

Pros and cons of a POD account

A POD account is a valuable tool in planning your estate. It offers key advantages, such as avoiding probate and making sure your beneficiaries have quick access to funds.

However, be aware that these accounts also have limitations that may make them unsuitable as a standalone alternative to estate planning.

Pros:

• Ensures speedy transfer of assets. POD accounts let beneficiaries access funds quickly after the account owner's death. This can be a big advantage during times of financial need.
• Avoids legal fees. Probate can be costly, with steep attorney fees and court costs. By bypassing probate, POD accounts help save money.
• Protects privacy. Because probate proceedings are public records, avoiding probate helps maintain privacy around the distribution of your assets.
• Offers straightforward setup. Most banks and credit unions provide this option, and it requires minimal paperwork.
• Allows you to make changes easily. The account owner can easily switch designated beneficiaries at any time without needing to create new legal documents.
• Provides a simpler alternative to living trusts. While living trusts offer extra benefits, such as managing assets during incapacity and avoiding probate, they also require more initial setup and maintenance. POD accounts provide a simpler, less-expensive option for some assets.

Cons:

• Potential incapacity issues. If the account owner becomes incapacitated, then changes to the beneficiary designations may become difficult or impossible to make.
• Limited access to funds during the owner’s lifetime. The beneficiaries have no way to access a POD account until after the account owner's death. If beneficiaries need to draw on the funds earlier, they would need the owner to handle the withdrawal.
• Overrides wills or trusts. A POD goes to the designated beneficiary, even if that conflicts with your will or living trust. This might lead to conflicts among your heirs.
• Lacks protection from creditors. Funds in a POD account might not be shielded from creditors if you die without enough assets to cover your debts.
• Tax implications. While POD accounts can provide tax benefits in some situations, it can also have tax implications. Funds from a POD account could result in income tax or capital gains tax for the beneficiary, depending on the circumstances.

How to set up a POD account

The set-up process for a POD bank account is straightforward. Attention to detail is key when filling out the beneficiary designation form to ensure your intentions are clear and legally binding.

Here’s how to create your POD account:

1. Select your financial institution. Choose a bank or credit union that offers POD account options and is insured by the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA).
2. Gather required information. Find out which information the bank or credit union requires for setting up a POD account and gather it, along with the necessary details of your beneficiaries, including Social Security numbers.
3. Meet with a bank representative. Schedule an appointment with your financial institution to discuss setting up a POD account.
4. Complete the beneficiary designation form. The bank or credit union will give you a form to fill out. Be careful with each beneficiary's personal information to prevent any disputes or confusion later.
5. Review terms and conditions. Be sure you understand the terms of the POD account agreement, including what happens if a beneficiary dies before you do and whether you can name multiple beneficiaries.
6. Verify account details. Confirm that all details on your POD account are accurate, including beneficiary designations and the percentage of funds each will receive, if applicable.
7. Store documents securely. Retain copies of all forms and agreements in a secure location where they can be accessed by your executor or attorney when needed.
8. Inform your beneficiaries. While not required, it's a good idea to inform your beneficiaries about the POD account so they know to claim the assets.
9. Review regularly. As part of a comprehensive estate plan, it’s important to regularly review and update your POD accounts, if necessary.

Are POD accounts subject to taxes?

The answer is yes and no.

For tax purposes, POD accounts are considered part of the estate, even though they bypass probate.

• Good news: Most estates are not subject to federal estate tax. Up to $13.61 million of an estate is exempt from federal taxes for 2024.
• Not-so-good news: The beneficiary of a POD account may have to pay state inheritance taxes.

Bequests aren't taxable, which means the value of a POD account won't be included in a beneficiary’s taxable income.

The estate's income tax return includes any income earned by the POD account before the person’s date of death. It also includes any income earned between the date of death and the beneficiary taking ownership of the account.

Your beneficiary is only liable for earnings from the account that occur after you die.

Before opening a POD account, consider your circumstances and financial goals. Consulting with a financial advisor or lawyer can also help you navigate the pros and cons of POD accounts as part of your overall estate plan.