Payable on Death (POD)

Payable on Death (POD) (also known as a 'Totten Trust' in some US states) is a simple and powerful estate planning tool that allows you to name a beneficiary for your financial accounts, such as bank accounts or certificates of deposit. Think of it as a direct instruction to your bank: upon your death, the money in the designated account is to be paid directly to the person you named, completely bypassing the court-supervised process known as probate. During your lifetime, you maintain absolute control over the account—you can deposit, withdraw, change the beneficiary, or close the account at any time without needing anyone's permission. The beneficiary has no rights to the money while you are alive. It’s a straightforward way to ensure your cash assets are transferred quickly and privately to your loved ones, preserving their value by avoiding potential legal fees and delays.

Setting up and using a POD arrangement is beautifully simple, which is a core part of its appeal for any forward-thinking investor or saver. The process generally involves just a few steps:

1. 1. Designation: You fill out a simple form provided by your financial institution (your bank or credit union). On this form, you name one or more primary beneficiaries who will inherit the account's funds. You can often name contingent beneficiaries as well, who would inherit if the primary beneficiary is no longer living.
2. 2. Full Control: While you are alive, nothing changes. The account is 100% yours. You can manage it, spend from it, and make any changes you wish. The beneficiary has no access or say in how the account is managed.
3. 3. The Transfer: Upon your death, the beneficiary simply needs to present proof of your death (usually a death certificate) and their own identification to the bank. The bank will then transfer ownership of the account and its funds to the beneficiary. The process is typically completed in days, not the months or even years that probate can take.

The single greatest advantage of a POD account is avoiding probate. Probate is the formal legal process where a court validates your will, inventories your assets, pays your debts, and ultimately distributes what's left to your heirs. While necessary in many cases, probate can be:

• Slow: The process can drag on for months, leaving your heirs waiting for access to funds they may need.
• Expensive: Legal fees, executor fees, and court costs can chip away at the value of your estate.
• Public: Probate proceedings are a matter of public record, meaning the details of your assets and who inherits them become accessible to anyone.

A POD account is a non-probate asset. It passes outside of your will and the court system, making the transfer swift, cost-effective, and private. This aligns perfectly with a value-focused mindset, as it maximizes the wealth you pass on to the next generation by minimizing administrative friction and cost.

It's crucial to understand how a POD designation interacts with other common estate planning methods. Misunderstanding these rules can lead to unintended consequences.

This is a critical point: A POD designation on an account supersedes your will. If your will states that all your assets should be split equally between your two children, but your largest savings account has a POD designation naming only one of them, that one child will receive the entire account. The instructions in the will are irrelevant for that specific asset. This makes it essential to ensure your beneficiary designations are aligned with your overall estate plan.

Adding someone to your account as a joint owner, often as a 'Joint Tenancy with Right of Survivorship (JTWROS)', is fundamentally different from naming them as a POD beneficiary.

• Joint Owner: A joint owner has immediate ownership rights. They can withdraw money from the account at any time, and the account is potentially exposed to their creditors or legal troubles.
• POD Beneficiary: A beneficiary has no rights or access to the account until you pass away. You retain complete control and protection over your money during your lifetime.

For most people who simply want to pass an account to an heir, a POD is a safer and more appropriate choice than joint ownership.

While POD accounts are fantastic tools, they aren't a one-size-fits-all solution.

• Asset Types: POD designations are typically used for cash-based accounts like checking, savings, money market accounts, and Certificates of Deposit (CDs). For investment and brokerage accounts, a very similar mechanism called a 'Transfer on Death (TOD)' registration is used.
• What's Not Covered: You generally cannot use a POD for tangible assets like your car or art collection, nor for real estate. These assets typically require a will or a more comprehensive instrument like a living trust.
• Keep It Updated: Life changes. A marriage, divorce, birth, or death can all be reasons to review and update your beneficiary designations. An outdated POD form could accidentally send your life savings to an ex-spouse instead of your children. Make it a habit to review your beneficiaries every few years to ensure they reflect your current wishes.