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Home / General / What is a Payable on Death Account?

What is a Payable on Death Account?

December 6, 2010 by Jack N. Alpern, Estate Planning Attorney

A payable on death account is a simplistic estate planning tool that can be fast, easy and inexpensive to set up.  This account is any bank account that has been set up with a named beneficiary on a form.  Nearly any bank account may be set up as a payable on death account, as a beneficiary form simply needs to be completed.  You should also notify the beneficiary of your plans.

With a payable on death bank account, the beneficiary has no rights to the funds until you pass away. Until that time, you are free to use the money kept in the bank account, to change the beneficiary or to close the account. You control everything until you pass on, at which time the beneficiary takes control of the account.

A payable on death account is fast and easy to establish, but it does have another big benefit – the funds in the account also avoid probate.  This allows the funds to be accessed very quickly and they can be used to help pay immediate expenses upon the passing of a loved one.

While there are several advantages of a payable on death account, there are disadvantages as well.  One ils that there is not much flexibility in terms of naming different beneficiaries.  While some accounts may allow you to divide the account equally among beneficiaries, there are other estate planning documents that allow more flexibility.

Another drawback is that there are no tax advantages to payable on death account, as the balance is included in the tally of the deceased’s estate.  For larger estates, there may be alternate tools that give them the flexibility and tax advantages that may be needed.  Still another possible downside is that the recipient may not be willing to voluntarily contribute to the final expenses of your estate, such as funeral and burial costs, probate fees, estate taxes and appraisal fees.

An estate planning attorney can advise if a payable on death account meets your estate’s and family’s needs, as well as advise you of other tools that are suitable for your situation.

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Filed Under: General Tagged With: Estate Planning, probate

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