Planning for the distribution of your assets after your death is an important consideration that requires careful thought and consideration. One strategy that can be effective in avoiding probate and the resulting costs and fees is using the Pay on Death (POD) option.
The Pay on Death option allows you to name a beneficiary for your bank accounts or other cash-type assets like a Money Market Account that don't have a designated beneficiary. When you die, the assets are transferred directly to the named beneficiary without having to go through probate. This can save your estate both time and money, as probate can be a lengthy and expensive process.
Another advantage, assets passed outside of probate are not subject to creditor claims either.
There are several benefits to using Pay on Death. One of the most significant advantages is that it can help you avoid probate. Probate is the legal process of distributing an individual's assets after they die. It can be a complex and time-consuming process, especially if the estate is large or there are disputes over the distribution of assets. Remember, all your creditors need to be paid from the estate assets too. By using Pay on Death, you can bypass the probate process and ensure that your assets are transferred directly to your beneficiaries intact quickly.
Another benefit of using Pay on Death is that it can help you avoid shrinkage of your account value. When an estate goes through probate, there are various costs and fees associated with the process. These expenses can add up and result in a significant reduction in the overall value of your estate. By using Pay on Death for eligible accounts, you can avoid these costs and ensure that your beneficiaries receive the full value of the assets you intend to leave them.
Setting up Pay on Death is a relatively simple process. To do so, you need to contact your financial institution and request the necessary forms. You'll need to provide the name of your beneficiary and their contact information. Once the paperwork is complete, you'll need to sign it and return it to your financial institution.
What if your financial institution does not offer this option? Well, it may be best to change to a financial institution who does offer this service if bypassing probate on the assets is important to you. It is a choice you need to make to change institutions to get the benefit or stay put and accept the probate process on those funds.
It's worth noting that not all assets can be designated as Pay on Death. For example, retirement accounts such as 401(k)s and IRAs have their own beneficiary designation forms. Life insurance policies also have their own beneficiary designation forms. Be sure to check with your financial institution to see which assets can be designated as Pay on Death.
It's also important to keep your beneficiary designations up to date. If your circumstances change, such as a divorce, a child changes their name, or the birth of a new child in the family, you'll want to update your beneficiary designations to reflect these changes.
While Pay on Death can be a valuable tool in avoiding probate and preserving the full value of your assets, it's not a substitute for a will. A will is a legal document that outlines your wishes for the distribution of your assets after you die. A will can cover assets that cannot be designated as Pay on Death, such as real estate. To ensure that your entire estate is distributed according to your wishes, you should have both a will and a Pay on Death designation for applicable assets.
It is an entirely different discussion about whether trusts should also be used as an estate planning tool, and what type of trust based on individual assets, circumstances, and distribution desires that we will not go into here today.
In conclusion, Pay on Death is an effective way to ensure that your bank accounts and other assets are distributed according to your wishes after you die. It can help you avoid probate and preserve the full value of your assets. However, it's important to remember that Pay on Death is not a substitute for a will or trusts and that it's important to keep your beneficiary designations up to date. By using Pay on Death in conjunction with other legal documents in a coordinated estate plan, you can ensure that your assets are distributed efficiently and effectively after you pass away.