Payable on Death Accounts

There are four different types of multi-party accounts that must be considered as an essential component of an estate plan. The types of accounts are: 1) joint account, 2) agency/convenience, 3) payable on death, and 4) trust.

The payable on death (“P.O.D.”) account makes the accountholder’s funds payable to one or more individuals upon the accountholder’s death. The individuals who receive the funds are called “payees.” All payees and the accountholder must sign a written agreement for the P.O.D. account. During the accountholder’s lifetime, the funds in the account belong to the accountholder, who can remove funds and close the account without accounting to the payees.

The type of written agreement affects how and to whom funds are payable. For example, if Mom and Dad own a checking account that is P.O.D. to son. If the account is titled “Mom or Dad, P.O.D. to son,” there is no survivorship agreement between Mom and Dad. If Mom passes away, then Mom’s net contributions to the account will pass through Mom’s estate and not to Dad. Mom’s contributions to the account will not pass to son since son’s P.O.D. benefits do not apply until both Mom and Dad pass away.

If the account agreement reads “Mom or Dad with right of survivorship, P.O.D. to son,” then Mom’s deposits would pass to Dad upon her death, and if any funds remain in the account upon Dad’s death, those funds then go to son.

Simply having a P.O.D. payee does not change the accountholder’s ability to use the funds during the lifetime, nor does it create any rights of the P.O.D. payee during the accountholder’s lifetime. However, it does allow the payees to access the funds in the account after the accountholder’s death without having to go through estate administration or probate proceedings.