A common strategy to avoid probate is making a POD (Payable on Death) designation on your bank accounts. A POD designation names a beneficiary who will receive the account upon your death.
At the time of death, the beneficiary generally must provide the financial institution with a death certificate and other required documentation. Once completed, the beneficiary becomes the owner of the account.
To many, this sounds simple. But, even more, it seems the perfect way to avoid probate.
But there are significant pitfalls that should not be overlooked:
No asset protection for the beneficiary.
Once received, the funds may be exposed to the beneficiary’s creditors, lawsuits, or divorce.
Potential impact on government benefits.
An outright inheritance may affect a beneficiary’s eligibility for certain means-tested benefits.
Guardianship issues
If the beneficiary is a minor or unable to manage assets, additional court involvement may be required.
May conflict with your overall estate plan.
A POD designation can override the distribution you intended through your Will or Trust.
Outdated designations can cause unintended results.
Marriage, divorce, death, or changes in family circumstances may make an old beneficiary designation inappropriate.
Limited control after death.
Unlike a properly structured trust, a POD designation generally gives the beneficiary the fundsoutright, without providing continued control over when or how they are used.
Avoiding probate should not be the only goal of your estate plan.
The goal should be making sure your assets are distributed according to your wishes and, where appropriate, protected for the people you love.
Piecing together an “estate plan” on your own or trying to cut corners can cost your beneficiaries significant money, time, and hardship.
Thoughtful planning means working with an experienced attorney who takes the time to understand your family, wishes, financial landscape, and long-term goals.
We can help you determine whether your POD designations truly fit into your overall estate plan. Contact us to learn more.
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