The Problem with PODs or Why “POD” Doesn’t Solve All of Your Estate Planning Problems
When you set up a financial account, such as a checking, savings or money market account, you can name a beneficiary for the account using a “Payable on Death”, also known as a POD, designation. The idea is that the bank will pay out the money left in your account when you die.
While the POD designation avoids Probate when you die, there are 3 other important issues with PODs:
- Guardianship – otherwise known as “Probate during life” occurs if you can’t make your own decisions and either you don’t have the right documents in place or the documents are not strong enough. In this case, the POD designation does not allow your beneficiaries to access the account before your death to help you.
- Bloodline protection – most of the time, our clients leave assets to their children. If something happens to one of the children first, our clients want to leave that child’s share to their children (ie: our client’s grandchildren). However, a POD designation is a contract agreement between the owner and the financial institution (most often this is the bank). The agreement is written by the financial institution and governs what happens if the beneficiary you named passes away before you. More often than not, POD agreements are set up so that the deceased beneficiary’s share goes to the other beneficiaries you named as PODs, rather than your children. The result is that the POD fails to do what you wished at your death by disinheriting your entire bloodline.
- Asset Protection – A POD designation does not protect or preserve your assets from the risk of loss, such as to the cost of a long term care spend-down or from Medicaid Estate Recovery liens.
To learn more about the pros and cons of POD designations and options you have to support your own personal estate planning goals, attend one of our free educational seminars or webinars and also be sure to check out our “Trust 101” channel.