What is a Payable on Death Bank Account?

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

In this lesson, you'll learn how some people avoid the probate process and make it easier for beneficiaries to receive a sum of money upon their death. You'll also learn how easy it is for these beneficiaries to claim the money.

A Payable on Death Bank Account

This is not a fun scenario, but imagine that you have a friend named Tom who recently passed away. Just a week ago, your friend told you that you are the beneficiary to his payable on death bank account. Just what kind of bank account is this? The payable on death (POD) bank account is a type of account where the account owners retain all rights to the account while they are still alive. When they die, the beneficiary becomes the account's owner.

A payable on death bank account avoids the probate process
payable on death bank account

Last week, Tom mentioned that this type of account actually speeds up the process of distributing his money when he dies. Since Tom doesn't have any family left and you are his very best friend, he wants to make sure that you receive what he has left.

Avoiding Probate

How do these types of accounts speed up the process of distributing funds? Well, this type of account actually avoids the entire probate process. The probate process occurs when a court decides whether a particular will is valid or not. If the will is deemed to be valid, the court grants the executor approval to proceed with distributing the deceased's assets according to the will. If there is no will, then it is up to the probate court to appoint someone to become the executor of the deceased's estate. This probate process does take time, sometimes around half a year.

Tom, though, didn't want you to wait that long. So, he opened one of these payable on death bank accounts for the purpose of giving you what he has when he dies. In this way, you'll have access to the funds immediately.

All you need to do to claim ownership of the account is go to the bank, show them Tom's death certificate, and present your identification. After they have ascertained that you are indeed the beneficiary, you'll now have access to the account. You don't have to wait for the probate process to finish before you get these funds.

However, if the account Tom opened happens to be a joint account, then you won't have access to the account until everybody on the joint account passes away. And if Tom has named others to also be beneficiaries, you'll have to share the funds in the account. It is up to Tom to determine who gets how much.

Other Names

This type of account does have different names depending on where you are. If it's not called a payable on death bank account in your area, it may be called by any of these names:

  • Totten trust
  • Tentative trust
  • Informal trust
  • Revocable bank account trust
  • In-Trust-For bank account

Regardless of the name, these accounts all perform the same way. The account owner has control over the account until he or she dies, at which point the account ownership transfers to the beneficiary. While the owners are alive, however, the beneficiary has no right to the account whatsoever. Also, the account owners can change beneficiaries at any time.

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