Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.

POTENTIAL PITFALLS OF PAY-ON-DEATH ACCOUNTS


It is not uncommon to hear an individual refer to a “Pay-On-Death” (“POD”) account as a poor individual’s version of a Will. The reason being is that upon the death of the account owner the account assets pass directly to the payee without going through probate. However, a 401k, IRA's, annuities and life insurance policies also falls into this category. Upon your death, the beneficiary designation on these accounts will determine to whom the account assets pass.  

In a recent case, an attorney prepared a Last Will and Testament (“Will”) for a client who wanted their substantial assets to be equally divided between her two sons.  The bulk of her assets were held in two brokerage accounts.  She named her oldest son as both the Personal Representative of her estate and as the “pay-on-death” beneficiary of the brokerage accounts. Upon her death, the oldest son took the position that it was his mother’s intention that he receive one-hundred percent of the brokerage accounts and that he and his brother would only split the assets passing under the Will.  The other son threatened to file a lawsuit and ultimately settled for an amount substantially less than his intended one-half share. Even if the woman had specifically bequeathed her accounts under her Will, the beneficiary designation would override the bequest and the account assets would pass to the designated beneficiary.

When should you utilize a POD?

The best use of a POD account is only when an individual wants a certain account to go to only one certain individual.  For example, an individual wants to leave their entire account or estate to their only child. Naming them as the pay-on-death account beneficiary will pass the assets directly to them and avoid the probate process. This same logic applies to 401k, IRA's, annuities and life insurance policies as well.

Review Beneficiary Designations Often:


To avoid unintended results, it is important to review beneficiary designations as a part of the estate planning process. A well intentioned estate plan can be foiled by a forgotten beneficiary designation.