Generally speaking, if someone passes away with money in a bank account, the funds from that account are going to be part of their estate. If their will then directs the estate administrator – sometimes called an estate executor – to split the wealth between two heirs, the contents of the bank account will be divided along with everything else.
However, the individual who started that account may have set it up as a POD account, meaning that it is Payable On Death. What is this going to mean for the estate planning process? What could it mean for the heirs?
It avoids probate
First off, the contents of a POD account are not going to go through probate and they are not going to remain a part of that person’s estate. As soon as they pass away, the money is owned by the beneficiary that was named on the account. Proof of passing may be all that is needed.
Now, say that the will still instructs the administrator to divide the account. They no longer have to do so because that account is outside of the will. The financial institution, whether it’s a credit union or a bank, is not going to split it up between multiple individuals. That doesn’t mean that the heirs can’t carry out this division on their own, but just that they’re not obligated to do it.
Why would you choose this option?
Avoiding probate is just one reason to choose this option. Some people also do it because it is quick and easy, and they’re trying to make sure that things go smoothly for their heirs. Others will do it because they are trying to disinherit someone, and this is an easy way to transfer assets into a different person’s name without the risk of a will contest. Since the POD account is outside of the will, it has no control over what happens to that money.
All told, this is just another example of why it’s so important to understand all of your potential estate planning tools as you work through this process.