When someone passes away, their estate typically goes through probate. This is the process of distributing assets. If there is no estate plan, the distribution is done in accordance with state law—this is known as dying intestate. If there is an estate plan, then the estate administrator follows that plan to distribute the assets.
However, there are ways to keep money out of probate. One example is to use a payable-on-death (POD) account. If you have a bank account designated as a POD account, you name a beneficiary. When you pass away, they present proof of your passing to the financial institution and then take over as the next account holder. This transfer happens outside of probate because they were already named on the account.
Why would this be helpful?
There are many reasons why this can be beneficial. For one thing, probate takes time. It could be months before beneficiaries receive their financial assets. However, the beneficiary of a POD account can access the funds relatively quickly, making it a faster way to transfer money.
Another benefit is that an estate plan itself can be challenged by direct descendants, beneficiaries, creditors and others, which can delay the process. However, a POD account beneficiary designation cannot be challenged in the same way. This means that the transfer is relatively smooth. Using this type of account lowers the odds of serious disputes between family members and other beneficiaries.
Drafting your estate plan
POD accounts are just one option to consider when drafting your estate plan. Take the time to carefully explore all the legal options available to you.