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.
