“It’s
not that these accounts can’t or shouldn’t be used, it’s just they have to be
coordinated carefully with the rest of the plan,” says Patrick Lannon, an
estate lawyer with Bilzin Sumberg in Miami, Fla. “If there is more than one
child and you make a paid on death account in favor of just one, it’s bound to
cause misunderstanding,” he adds.
Sometimes it’s the simple things
in life that you have to watch out for. Things that appear simple can actually be very complex. So it is with “payable
on death” accounts, or PODs.
Forbes recently featured this subject in an article titled “When Payable On Death Accounts Backfire.”
The promise of a “payable on
death” account cannot be undersold. Funds subject to such an arrangement escape
probate and transfer straight to the named beneficiaries. No muss, no fuss.
On the other hand, whenever an
asset passes “outside” of your estate by avoiding probate, it may not be in
sync with your overall estate plan. This is true when you really intend for all
of your heirs to share in your estate equally. If you have any accounts
“payable on death” to just one of your heirs, then he or she will receive more
of your estate than intended.
Perhaps you want a particular
account “payable” to the heir who also will be your executor. Your thinking is
that such a move will enable them to have ready cash for funeral and other
final expenses when needed. To avoid misunderstandings and hard feelings, make
your intentions clear in your estate planning legal documents. For example, you
could provide that any proceeds left after your funeral and final expenses will
become part of the inheritance for that heir with an adjustment made to
equalize the shares of the other heirs under your estate plan.
In short, “payable on death”
accounts and other direct methods to designate beneficiaries outside of your
estate planning documents can be incredibly useful when used correctly.
Unfortunately, it can also be downright counterproductive if they are not
properly taken into account.
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Reference: Forbes
(August 9, 2013) “When Payable On Death Accounts Backfire”