A payable on death account, or POD account, allows you to transfer money to someone else when you pass away without requiring those assets to go through probate. The individual or entity who collects those assets is called a POD beneficiary.
What does POD mean in banking? Broadly speaking, there are a number of deposit accounts that can be deemed payable on death, including checking and savings accounts.
If you’re considering establishing one of these accounts, it’s important to understand how POD accounts work. If you are a beneficiary, it can be helpful to know when and how you’re entitled to withdraw money from a payable on death bank account. Here’s a closer look at POD bank account rules and the pros and cons of setting up this type of account.
Key Points
• Adding a beneficiary to a bank account turns it into a POD account.
• POD accounts transfer funds directly to beneficiaries upon the account holder’s death, avoiding probate.
• Beneficiaries have no access to funds prior to the account owner’s death.
• Multiple beneficiaries receive equal shares of the account.
• Types of POD accounts include checking, savings, and certificates of deposit.
Payable on Death Accounts Explained
Simply defined, a payable on death account is a bank account with named beneficiaries. The beneficiaries of a POD account receive the assets held in the account in the event of the account owner’s death. You may also hear POD accounts referred to by other names, including:
• Totten trust
• Tentative trust
• ITF account (which stands for “in trust for”)
• Revocable bank account trust
• Informal trust
To create a payable on death account, you generally just need to add one or more beneficiaries to a bank account you own or co-own. Examples of POD beneficiaries can include:
• A spouse
• Adult children
• Siblings
• A nonprofit
Worth noting: If you co-own the account with your spouse or someone else, they cannot be named as a POD beneficiary. Typically, when one owner of a joint account dies, the other will automatically become the sole owner of the account. In this case, the POD designation only takes effect only when the second owner dies.
Payable on Death Rules
Payable on death accounts have certain rules that set them apart from other accounts. The most significant rule concerns when beneficiaries can access the money in the account. Here are some details to know:
• If you open a POD bank account, you have full control over the money in the account during your lifetime. Even if you name multiple beneficiaries to the account, those beneficiaries cannot lay claim to any of the funds in it until you’ve passed away.
• In terms of how the money in a payable on death bank account is divided, each beneficiary typically receives an equal share. So if you have $100,000 in a savings account when you pass away and that account has four POD beneficiaries, each one would receive $25,000.
• Note that state law may limit the number of beneficiaries you can name to a payable on death account. Your depository institution may have additional rules for POD accounts.
• To claim their inherited funds, the beneficiary of a POD typically has to present a government ID and a certified copy of the account owner’s death certificate.
Types of Accounts That Can Be Payable on Death
There are a number of account types that can be established as POD accounts. Your options can include:
• Savings accounts
• Certificate of deposit (CD) accounts
• Individual Retirement Accounts (IRAs)
• Investment accounts
In terms of what accounts cannot be POD, the list includes small business and commercial bank accounts as well as safety deposit boxes.
Credit accounts are not POD accounts either, since there are no assets to leave behind. In terms of what happens to credit card debt when you die, it can become the responsibility of your spouse or your estate, depending on where you live.
Payable on Death vs Beneficiary
Payable on death refers to an arrangement between an account holder and a financial institution in which the account holder designates specific beneficiaries to receive the funds in the account after they die. The term “beneficiary,” however, is used to refer to an individual or entity that’s entitled to inherit assets from someone else. POD beneficiaries fall under the larger beneficiary umbrella.
Similarities
When you name a payable on death beneficiary, you’re telling your bank that you want that person or entity to receive money from the account when you pass away. This is similar to naming a beneficiary to any type of account, including a life insurance policy. Your life insurance beneficiary, for example, is entitled to receive a life insurance death benefit from the policy when you die.
Payable on death beneficiaries and other types of beneficiaries are also generally not entitled to any money during your lifetime. They can’t access your bank account, withdraw money from your 401(k), or cash in your life insurance. But they all stand to benefit financially from your passing in some way.
Additionally, assets that have a named beneficiary are not subject to probate. So, if you open a Roth IRA and name your spouse as the beneficiary, they’d have access to the money in the account relatively quickly when you pass away. The same is true with regard to life insurance.
Differences
The main difference between payable on death accounts and other beneficiary accounts lies in what’s being passed on. With POD accounts, you’re typically talking about bank accounts. So you might leave your checking account or savings account to your children after you’re gone.
There can also be differences between payable on death accounts and other beneficiary accounts with regard to taxation. Someone who inherits a POD account may owe estate taxes, for instance, whereas life insurance proceeds are typically income and estate tax-free. (Determining how to allocate one’s funds and the tax burden that will result can be an important part of estate planning.)
Pros and Cons of POD Accounts
Payable on death accounts can offer advantages and disadvantages. It’s helpful to weigh both sides before opening one.
Here’s an overview of the main pros and cons of POD accounts.
| Benefits | Drawbacks |
|---|---|
| You retain control of the account and the assets in it during your lifetime. | Beneficiaries would not be able to access funds if you were to become incapacitated. |
| Payable on death accounts are not subject to the probate process. | It’s not possible to name alternatives to your beneficiaries. |
| Depending on state law, you may be able to name multiple beneficiaries. | State law may restrict the number of POD beneficiaries you can name. |
| Removing POD accounts from probate can allow beneficiaries to access funds quicker. | It can be complicated for estate executors to access funds to settle a larger estate using POD deposits. |
Recommended: Money Management Guide
Payable on Death Account vs Trust
A POD bank account and a trust both allow assets to be transferred to beneficiaries without going through probate, but they serve different purposes and offer varying levels of control and flexibility.
Here a look at some key differences between POD accounts and trusts:
• Control: A POD account transfers funds immediately upon death, whereas a trust allows for more control over how and when beneficiaries receive the assets.
• Complexity: Setting up a trust involves legal documents and potential ongoing management, while a POD account is a simple beneficiary designation with a bank.
• Scope of assets: A trust can hold various assets, including real estate, life insurance, annuity certificates, and investments. A POD account, on the other hand, is typically limited to certain types of assets, such as bank accounts and certificates of deposit.
The Takeaway
You might consider a payable on death account if you’d like to pass assets on to loved ones with minimal fuss. That could be helpful if you’d like to make sure they have easy access to cash to cover funeral and burial expenses or any basic living expenses after you’re gone.
You can typically turn any bank account into a POD account, so it pays to shop around and find the best fit for your needs and goals.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What does payable on death mean?
Payable on death means that money in a bank account is payable to one or more beneficiaries when the original account owner passes away. A payable on death bank account allows beneficiaries to receive funds without having to go through the probate process.
Is a POD on a bank account a good idea?
Yes, adding payable on death (POD) beneficiaries to a bank account can be a good idea. For one reason, it allows you to choose who will receive the assets in the account after you pass away. For another, POD accounts bypass the probate process (a legal procedure in which your assets are inventoried), giving your heirs quicker access to your account.
What is the difference between a pay on death and a beneficiary?
Payable on death is a designation that applies to bank accounts and other financial accounts. A beneficiary is someone who’s named to receive money from a bank account, retirement account, or other asset (such as a life insurance policy). A POD account can have one or more beneficiary designations.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Photo credit: iStock/bob_bosewell
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