When people die, the money in their checking accounts usually becomes part of their estate. No one can touch the cash until the estate goes through "probate," the sometimes lengthy legal process of sorting out what's in the estate and who's entitled to receive it. However, by designating a checking account as "payable on death," the account owner can ensure the money bypasses probate and goes straight to an heir.
Setting It Up
Putting a POD designation on a bank account is simple. The account owner just goes to the bank and fills out a form identifying the beneficiary -- the person who will receive the money if the account holder dies. An adult or child can create an account POD, and just about anyone can be the beneficiary. Your parents could make you the POD beneficiary of their account, and you could make them the beneficiaries of your account. POD designations aren't limited to checking accounts; you can also put them on savings accounts and certificates of deposit.
As long as the account owner is still alive, that person has full control of the account. Beneficiaries can't write checks or make withdrawals, and they have no right to challenge how the account holder spends the money. The account owner can change the beneficiary anytime by notifying the bank.
Claiming the Money
Claiming the money in a POD account after the account owner dies is also fairly simple. The beneficiary goes to the bank and provides proof of the death -- a certified copy of the death certificate should do -- and shows ID. As long as the person showing up to claim the money is the one named as the beneficiary in the documents on file at the bank, the money is the beneficiary's.
Following the Rules
If the checking account is a joint one, the beneficiary typically can't claim the money unless both account owners die. If an account holder died with outstanding debts, creditors can seize money from the POD account before it passes to the beneficiary. POD accounts can't be used to "hide" money from creditors or shield it from estate tax. Although the funds in a POD account don't go through probate, they're still counted when calculating whether estate tax will be due. As of 2013, only estates worth more than $5.25 million are subject to estate tax. When taxes are due, they are paid by the estate, not the beneficiaries.
- Ohio State Bar Association: What You Should Know About P.O.D. Accounts
- Nolo: Payable-on-Death Accounts: The Basics
- Forbes: When Payable-on-Death Accounts Backfire
- Federal Deposit Insurance Corporation. "Your Insured Deposits." Accessed Sept. 28, 2020.
- Securities and Exchange Commission. "Transfer on Death (TOD) Registration." Accessed Sept. 28, 2020.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.