Opening a payable-on-death (POD) account is one of the ways of avoiding probate. The named beneficiaries just have to show proof of identity and your death certificate to claim the money. However, there are still a few issues that may make a POD not suitable for your plans; here are three examples of such issues:
They Aren't Suitable For Minors
The law doesn't prohibit you from naming a minor as the beneficiary of a POD account. However, it isn't a wise idea because your minor will have to pass through loops and hoops to get their hands on the money. This is because financial institutions that handle POD accounts don't release money automatically to minors like they do with adults. The minor has to get evidence of guardianship or get a court order authorizing the release of the funds.
This costs money and time, more so if there are multiple minors involved. Each minor has to go through the process, which can reduce the eventual money they receive.
You Can't Name an Alternate Beneficiary
Another potential complication may arise because you can't name an alternate beneficiary to a POD account. You can name multiple beneficiaries to share the money equally or in a specified manner, but not an alternate. This means that if you have named only one person as the beneficiary, and they can't collect the money (for example if they die shortly after your death), then the money has to pass through probate and go to an unintended recipient.
It Might Contradict the Will
If you have both a will and a POD, then you must ensure that they don't contradict each other. If they do, then your beneficiaries will be confused, the matter will end up in court, and the money may end up with unintended recipients.
A classic example is a parent who writes a will leaving "all" his assets to be divided equally amongst their children. A contradiction arises when the parent then goes ahead and created a POD for one child (perhaps if the parent feels the child needs it more). In this case, the main question is whether the POD account is included in "all" assets or it is a separate entity.
This is why it's a good idea to engage an attorney when trying to avoid probate in your estate plans. Moving without professional advice might result in a mistake that may cost your beneficiary dearly. For example, you may end up pitting your beneficiaries against each other if your estate planning documents seem to show contradicting ideas.
To contact an estate planning attorney, contact a law firm such as Linn Schisel & DeMarco Attorneys At Law.Share