I recently created a revocable living trust for my 94-year-old grandmother. During the process, I asked her to gather a list of her financial accounts so that we could title them in the name of the trust. That’s when I learned the truth: My grandmother is a bank account hoarder.
By that, I mean that she has accounts everywhere — big banks, small banks, credit unions, etc. Even though some accounts have less than $100 in them, she still keeps them all because, in true hoarder fashion, “You never know when you might need them.”
While we were sorting through the various account statements, I asked her if she had POD beneficiaries named on each account. Our conversation went something like this:
“Grandma, who is the POD beneficiary on this account?” “I don’t know.” “What about this account?” “I don’t know.” “How about this account?” “I don’t know.”
Finally, I asked her if she knew who any POD beneficiary was on any account. She answered, “I don’t know. What’s POD mean?”
That’s when I decided to write this article. Though I am no expert on banking, I deal with financial institutions on a regular basis as an estate planning attorney, so I’ve decided to share a few things that I’ve learned along the way.
What Is a POD Account?
A payable on death (“POD”) account allows the account owner to name a beneficiary (or beneficiaries) who will receive the remaining funds in the account after the owner passes away. POD benefits can be set up for checking accounts, savings accounts, certificates of deposit, etc.
What Are the Benefits?
There are quite a few benefits to setting up a POD account. First off, it’s easy to create. All you need to do is go to your local financial institution and fill out a form that makes your account payable to a specific person or persons upon your death. It’s free to do, and you’re able to change the beneficiary(ies) at any time as long as you’re alive and well.
Second, you do not lose any control by appointing a POD beneficiary. You are still in charge of your money; you can withdraw every cent in your bank account if you want to. While you are alive, the beneficiary has no right or interest in your account funds and cannot withdraw money at any time.
And finally, by setting up a POD account, your money passes automatically to the beneficiary, thereby avoiding the probate process and saving you thousands of dollars in legal fees.
In summary, creating a POD account is a quick and easy way to determine to whom the funds in the account will go to upon your death.
What Are the Disadvantages?
Recently, a colleague of mine (also an attorney) brought a POD issue to my attention. He informed me that a father had named his three children as his POD beneficiaries.
His children did not get along so, to prevent fighting, he left his savings account to the three children in equal shares … or so he thought.
When the father died, Son No. 1 showed the bank his father’s death certificate and produced proper identification.
The bank, recognizing Son No. 1 as a beneficiary, released all of the funds in the account to him. He then refused to share the money with his two siblings.
I was very surprised when I heard about that bank’s actions. When I called, the manager did confirm that the bank’s policy states that one beneficiary can withdraw the funds on behalf of all beneficiaries.
To my knowledge, this is not a common practice.
In my experience, the bank releases the funds to all of the beneficiaries, not just one. Hopefully, that was just a rule that specific bank employs — if not, it could definitely serve as a drawback to naming POD beneficiaries.
Additionally, one common mishap that occurs when setting up a POD account is that the owner tends to name a sole beneficiary. For example, let’s say that Cynthia designates her husband, Mike, as her POD beneficiary. Mike predeceases Cynthia, so upon her death, the account must be probated, as her only beneficiary has already passed.
Most banks will provide the option of naming an alternate beneficiary, precisely for situations like the one above.
However, married couples tend to set up their accounts early on before they have kids, forgetting to add the children onto the account as alternate beneficiaries later on. With POD accounts you are not given periodic reminders to update your beneficiary designations, so you must remember to do so on your own.
Does a Will or a Living Trust Supersede a POD Designation?
This is a question that comes up a lot in the estate planning field. Let’s say, for example, that Mari opens up an account at Okane Bank and designates her son, Brett, as the POD beneficiary.
Ten years later, Mari creates a revocable living trust naming her two granddaughters as the beneficiaries of her estate; Brett is intentionally omitted because of the severe gambling problem he has developed. Upon Mari’s death, the two granddaughters assume that they inherit the Okane Bank funds, figuring that the trust governs as the most recent document.
This is not the case. The living trust dictates how trust assets are distributed. Because the POD account named Brett (as opposed to the trust) as the beneficiary, the money is rightfully Brett’s. To avoid this issue, Mari could have changed the beneficiary to the trust or to her granddaughters.
What Else Do I Need to Know?
The guidelines and procedures for POD accounts vary according to state law as well as financial institutions. Each individual has certain wishes and concerns. Each bank has its own internal policies. It all depends on your specific situation. Ask your local bank detailed questions before designating a POD beneficiary, so you know what to expect or consult your local attorney for more information.
Staci Yamashita-Iida, Esq., is an Estate Planning attorney at Elder Law Services of California. She can be contacted at (310) 348-2995. The opinions expressed in this article are the author’s own and do not necessarily reflect the view of the Pacific Citizen or JACL. The information presented does not constitute legal advice and should not be treated as such.