Inheritance Taxes And POD Accounts

  |     |   2,641 posts since 2011

Does anyone know how Payable on Death accounts fit in with Inheritance Taxes?  Someone recently told me they aren't considered Inheritances as long as they are not probatable .  Is this correct?  I was told they are taxed at the 67% rate and it just doesn't fit in with anything I have ever known.  Has anything recently changed when it comes to how much Inheritance tax we have to pay if we inherit CDs only?   Is it true it is better to list anyone you want to inherit a CD directly on the CD rather than put them on as a POD?  Which is better taxwise.  I apologize for all the questions but I am now really confused about these matters.  If you know of a link I can use to be educated on the subject, please advise.  Thanks for your help.

  |     |   4,118 posts since 2010
"Payable-on-death bank accounts offer an easy ways to keep money—even large sums of it—out of probate. All you need to do is properly notify your bank of whom you want to inherit the money in the account or certificate of deposit. The bank and the beneficiary you name will do the rest, bypassing probate court entirely. It's that simple." For 2013, up to $5.25 million of an individual’s estate will be exempt from federal estate tax, with a 40% tax rate applied to any excess over the exemption amount.

Payable-on-Death (POD) Accounts: The Basics |
  |     |   2,641 posts since 2011
Thanks for coming through for me again Shorebreak and for the Nolo link.  It helped me understand that the old way, in my case, is still the best way for me to use.  It also saves me from having to undo what I already have in place.  I appreciate your also adding the 2013 amount which is exempt from fed estate tax.  I needed to know that to convince some people why I will not be making changes to my accounts.   Much appreciation for the quick reply also.
  |     |   100 posts since 2016
You asked about inheritance taxes and shorebreak answered about fedieral estate taxes. They are different and pod account DO indeed count for inheritance taxes. Not many states have inheritance taxes but mine does but does not have estate taxes. When you go to the bank to get the proceeds, they will not give them to you until they fill out the inheritance taxes form required by the state. If the funds are with an out of state bank or credit union, I do not believe they are required to fill out any forms from your state.
  |     |   1 posts since 2016
Hi  Shorebreak, think maybe you can help me understand some Certificate of Deposit papers i have, my grandfather passed 2009 and Granny passed 2012. I was able to go through a lot of their items and thought all was said and done! I came across these papers and recently was contacted by a person about a lawsuit settle with different banks  Obvious I need to speak with someone ASAP. these paper need to be turned in stamp by the 14th Nov. yet little curious because they show acct numbers and % and what would be owed to my grandparents, but can't seem to get straight answer but to read this 144 some page bankruptcy court stuff..Can you help a confused Granddaughter Please..ty
  |     |   527 posts since 2010
ASAP would be to get to a lawyer .Maybe one in Probate
You got 5 days and 2 are weekend .Get a move on
  |     |   4 posts since 2019
If said estate is under the limit in the current IRS code for estate taxes, which is 11.4M for 2019.
In my home state with a POD, you need a notarized death certificate, your state photo ID, and
SS# to close the decedents account. Here, one can also do the same with a home, auto,
firearms, and a few more items. There is just a page, or two of legal paperwork to notarize for
each of these items. Helps keep it out of probate court, that can become expensive if one goes
more than once.
  |     |   2,641 posts since 2011
BTW, if only one Spouse's name is on the POD CD made out to a DD and the Spouse's DP has to go into a nursing home, can Medicaid use these POD CDs to pay for the institutional spouse's nursing home??  Thanks!
  |     |   3,073 posts since 2010
This is your state and has all the laws for your state if your husband goes to a nursing home and you are not paying for it. If you have moved from your state just copy and past the link into your browser and change the state. Read the links for each section and see if your state has a CLAWBACK and each has a 5 year look back and all nursing homes do not accept Medicaid for nursing home expenses . The income allowances totals change every year. I think you may have forgotten or lost when I sent it to you by PM or posted in the past. Copy and paste this into your browser. It will tell you about changing the beneficiaries on assets or taking names off from accounts for nursing home purposes. It will tell you about the amount the spouse is responsible for etc. Do a google the laws of your state and you can go to for federal law. Federal forms must if filed with your tax returns for gifts over $15,000 per person per year. There is no tax but it is subtracted from the total of allowable inheritances which is about 11.58 million for this year and 1/2 that for an allowable for each spouse. The estate pays the tax not the person who inherits. For inheritance taxes for you state the following link is here. I think you are referring to Class A benificiaries.
  |     |   100 posts since 2016
only a few states have an inheritance tax which is not the same as estate tax. New Jersey has an inheritance tax but no estate tax. If you leave an account in a New Jersey bank pod to an individual(s) inheritance tax is due unless the beneficiary is a lineal descendant in which case there is no inheritance tax. If the beneficiary is a brother or a niece for example, there is a steep inheritance tax which is paid by the estate executor. The bank is required to fill out form L8 and forward it to the state which will alert them to transfer of funds to a beneficiary
  |     |   76 posts since 2018
Inheritance taxes and POD accounts are two unrelated things. Inheritance Taxes apply to whatever assets a decedent owned at the time of death, no matter the method the decedent chooses to leave the asset to heirs. The only exception involves assets placed in certain irrevocable trusts before death that has named beneficiaries other than the decedent; those assets no longer belong to the decedent. Naming people as beneficiaries in other ways, such as by will, grantor trust or as PODs does not change the decedent's ownership of property in the estate until AFTER the decedent has passed, but the inheritance taxes apply to assets UPON death. The purpose of POD designations is not to save on taxes but to avoid the hassles and costs of probate associated with assets left by will without other evidence of designation of a beneficiary after death. Assets with Pay-On-Death designated beneficiaries completely avoid probate. They are often referred to by lawyers as a "poor man's trust" because lawyers hate them (they will not earn fees on POD accounts before or after death because, unlike trusts, no one needs a lawyer set up a POD account or to claim POD assets after death). POD designations do NOT avoid inheritance or estate taxes. If you own investments that you wish to leave to certain people and do not want those investments to be distributed to your heirs by the probate court (which will cost time and money and will become a matter of public record), you may be able to have the custodian of some or even all of those investments registered as POD. Instead of having a POD account, some custodians, especially the brokerage houses, will allow you to name your beneficiaries on special forms, which serve the same function as POD and will also not cost you anything. However, you will need to ensure that the way they list your beneficiaries is exactly the way you want those assets distributed after you pass.
  |     |   159 posts since 2020
If you (or the account owner that dies - the decedent) is not a multi-millionaire, don't worry about it. THE Federal estate tax exclusion is over $11M! However, ESTATE TAXES may be owed to various states as their limits vary. You would have an accountant figure taxes as of date of death and your estate lawyer probate the estate (or the trustee of the trust implement it) and then figure any amounts due. Realize (as of today anyway) very few Americans owe estate taxes upon death. For the others a POD account should, have a beneficiary on EVERY account you have and if your state allows, property also (many do not allow a PoD on property) should have a PoD. Probate then can be simplified upon death as only items without a PoD will be probated. After the PoDs on ALL accounts (or joint ownership on ALL accounts not having a PoD) a simple will, durable power of attorney, health care directive and a competent executor are minimums that anyone should have. A living trust is typically not necessary and can be cumbersome to fund and costly to prepare though in complicated probate states (California comes to mind) they may be advantageous to have. 1-2 hours time with any estate attorney should answer your questions at a nominal cost.
  |     |   76 posts since 2018
There are some other situations where POD designations may not be needed while probate may still be avoided. One example is insurance policies with named beneficiaries. Another is retirement plans like Sec. 401(k) plans and Individual Retirement Accounts (IRAs) where beneficiaries are usually named. Another involves beneficiaries by operation of law, the most common being real estate (such as personal residences) that are titled to people in joint tenancy with right of survivorship (JTWROS), very common with spouses, where the surviving spouse automatically becomes owner of the property upon the death of the spouse who dies first. In community of property states, upon the first death of spouses, the surviving spouse automatically owns one half of the assets held in COP and if the other half is not owned by a trust it will go to whomever the will provides. Living trusts can be helpful to heirs after the trustor dies because the trustee rather than the probate court can handle the assets titled to the trust in his/her own time and without the costs and delays so common when assets are left by will and have to be probated, and the costs of drawing up the trust documents and retitling and recording property put into the trust is usually outweighed by the probate costs avoided as long as the assets are all distributed to the beneficiaries within a short period. In addition, unlike assets left by will that are available for public inspection, assets left by trust are kept private and are not publicly disclosed except in rare cases where there are disputes resulting in litigation brought to the probate courts.

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