Payable On Death (POD)

Definition

Payable On Death (POD) is a financial term referring to an arrangement where a financial institution, such as a bank or credit union, can immediately transfer the assets of an account to a named beneficiary upon the account holder’s death. This type of arrangement is often used for savings accounts, certificates of deposit, and other financial instruments. By designating a POD beneficiary, the account holder bypasses the probate process, allowing for a quicker and more efficient transfer of assets.

Phonetic

The phonetics of the keyword “Payable On Death (POD)” can be represented as:Payable: /ˈpeɪəbl/On: /ɒn/Death: /deθ/POD: /pɒd/

Key Takeaways

1. Payable On Death (POD) is an arrangement that allows the account holder to designate a beneficiary who will receive the funds upon the account holder’s death. This helps to avoid probate and simplifies the transfer of funds.
2. POD accounts can be created for various types of accounts, including savings accounts, checking accounts, and certificates of deposit. It is a common estate planning tool used to ensure that the designated beneficiaries receive the funds quickly and easily.
3. It’s important to note that the beneficiary will only gain access to the funds upon the account holder’s death. While the account holder is alive, they maintain full control over the account, including the ability to change beneficiaries at any time.

Importance

Payable On Death (POD) is an important financial term in business and finance as it designates the immediate and automatic transfer of assets to a named beneficiary upon the death of the account holder, thus bypassing the lengthy and complex probate process. This arrangement offers a hassle-free and cost-effective method for an individual to ensure their loved ones receive the intended amount of money or assets in a timely manner. Additionally, POD accounts maintain the account holder’s privacy, since the transfer of assets occurs without public probate proceedings, while still offering the flexibility to modify beneficiaries or other account details during the account holder’s lifetime.

Explanation

Payable On Death (POD) serves as a valuable estate planning tool designed to facilitate a seamless transfer of assets to a designated beneficiary upon the account holder’s demise. The primary purpose of POD arrangements is to bypass the probate process – a lengthy and often costly legal procedure to distribute a deceased person’s assets according to their last will and testament. By establishing a POD arrangement, the account holder simplifies the wealth transfer process and ensures that their designated beneficiary gains access to funds quickly after their death, bypassing the delays and expenses associated with the probate court system. In addition to these advantages, the use of POD arrangements offers privacy to both the account holder and the beneficiary. Unlike the probate process, which is a matter of public record, the transfer of assets through a POD arrangement remains confidential. Furthermore, these arrangements typically do not involve any additional fees beyond standard account maintenance costs, making them an economical choice for estate planning purposes. It is important to note that while POD arrangements provide a level of convenience and practicality, they should be considered supplementary to a comprehensive estate plan rather than a comprehensive solution, as they do not address other aspects of wealth distribution and inheritance, such as real estate and other non-liquid assets.

Examples

1. Bank Savings Account with POD Designation: John has a savings account at his local bank. To ensure that the funds in this account will be easily and quickly transferred to his daughter, Emily, upon his death, he adds a Payable-On-Death (POD) designation to the account. Following his death, the funds from his account will be directly and automatically transferred to Emily without going through a probate process. 2. Retirement Accounts with POD Beneficiary: Susan has an Individual Retirement Account (IRA) with her financial institution and wishes to name her husband, David, as the primary beneficiary in case of her death. She can designate David as the POD beneficiary, ensuring that David receives the funds from her IRA without having to go through probate. 3. Investment Accounts with Transfer-On-Death (TOD) Designation: Similar to a POD, the Transfer-On-Death (TOD) designation is used for investment accounts as a way to pass the account’s assets to a named beneficiary upon the owner’s death. Peter has a brokerage account with stocks, bonds, and mutual funds. He adds a TOD designation to this account, naming his son, Patrick, as the beneficiary. When Peter dies, the ownership of this investment account will be directly transferred to Patrick without going through probate.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Beneficiary
• Bank Account
• Transfer on Death (TOD)
• Estate Planning
• Probate

Sources for More Information

• Bank of America
• Investopedia
• Nolo
• NerdWallet