One simple method for keeping a portion of your assets out of probate when you pass away is to establish a Pay on Death ( POD) account.
How it Works
When you establish a Pay on Death account, you’re the owner of the account during your lifetime, and you name a beneficiary (or more than one beneficiary) who will inherit the account upon your death. Because you’ve named a beneficiary for the account, it’s considered a non-probate asset, and it passes directly to your named beneficiary at the time of your death. All he or she has to do is take a certified copy of your death certificate to the bank, show identification, and fill out any of the bank’s required paperwork for transferring the account.
What to Watch Out For
While a POD account is a simple tool for avoiding probate, there are some things to consider before deciding to use this option.
First, the same feature that lets you avoid probate can also complicate your estate plan. Because a POD account is a non-probate asset, when you want to add or replace a beneficiary, you’ll need to do so directly with your bank. Each bank has a specific form for doing this, and failure to fill out your bank’s form means that you haven’t actually updated your beneficiary designation. And this is regardless of what your Will says.
Similarly, because your Will has no effect on your POD account, you’ll need to be very careful about naming account beneficiaries. For example, naming your daughter as beneficiary but forgetting to name your son will effectively disinherit your son, at least for purposes of your Pay on Death account.
If you’re considering using one or more Pay on Death accounts as part of your estate plan, you’ll want to meet with your estate planning attorney to make sure the accounts work with the rest of your plan to achieve your estate planning goals.
Unlike your personal belongings, your home and your car, retirement accounts are not part of the probate process and cannot be transferred to your heirs in a Will. Instead, you must name a beneficiary on the plan document itself and upon your death, any remaining funds will be transferred directly to the designated person.
Known as a Pay On Death (POD) account, retirement plans and life insurance policies can present some unique challenges when planning your estate.
For starters, if your heirs don’t know the plan exists, they won’t know to collect on the funds after you’re gone. Secondly, if the beneficiary you name is already deceased, your funds may be tied up in court while a judge decides where they should go.
To ensure that your loved ones receive all the proceeds from your retirement plans, there are a few things you should do now:
First and foremost, update the beneficiary information on your plan document. Typically, the primary beneficiary is your spouse but you should name a secondary beneficiary as well. If you’re naming minor children, you’ll want to talk to your estate planning attorney about naming a conservator or creating a trust to manage these funds until your child reaches the age of majority.
The next thing you should do is create a folder that organizes all your important documents, and include a list of life insurance policies, retirement plans and even any pensions you might have. Make sure to provide contact information and account numbers for these plans so that your heirs will know exactly who to contact and what accounts to address.
Be sure to put all these documents in one place and let your family know where they are kept.
In addition, you’ll also want to create a Durable Power of Attorney. This legal document allows you to designate someone to handle your financial affairs for you in the event you become incapacitated. This is important because without a Power of Attorney, your loved ones will have to have you declared incompetent so that a judge can appoint a conservator to act on your behalf.
For more information on organizing your affairs and creating an estate plan, contact our office today.