What Is a Payable on Death Account?

There are some so-called “simple solutions” out there when it comes to estate planning. Some people buy into them, and, in many instances, unintended negative consequences result. With this in mind, let’s look at payable on death accounts.

Naming a Beneficiary

You can open a payable on death account at a bank or brokerage. It is an account like any other, except you are not the only person named on the account. With a payable on death account you name a beneficiary. You may be able to name multiple beneficiaries if this is your choice.

Think about the name: payable on death. The remainder that is left in the account is payable to the beneficiary upon the death of the primary account holder.

The Positives

There are some estate planning benefits that go along with the creation of a payable on death account. For one thing, it is simply better than nothing. Your beneficiary would assume ownership of the resources, and the probate court would not be forced to sort things out using intestate succession laws.

Probate is the legal process of estate administration. Even if you have a will, the estate must be probated. The assets that are held in a payable on death account would go to the beneficiary directly outside of probate.

Probate can be time-consuming. This direct transfer outside of probate can certainly be a positive.

The Negatives

There are some negatives that go along with the assumption that a payable on death account is a comprehensive estate planning solution.

For one thing, there are inherent limitations. If you can name multiple beneficiaries, you may be required to allow for an equal split of the assets that remain in the account. This may not be consistent with what you actually want.

Under these circumstances you may tell a single beneficiary to distribute the assets in accordance with your verbal instructions after you die. Your beneficiary may follow these instructions, but he or she is not legally compelled to do so.

With a payable on death account there is no way to account for the possibility of future incapacity. If you use a trust, you could name a disability trustee of your own choosing to manage your affairs in the event of your incapacitation.

Depending on your own unique personal circumstances you may have specialized concerns. These could include asset protection, providing for a family member with a disability who is receiving government benefits, protecting a spendthrift heir, and others.

A payable on death account won’t be the right choice unless you are okay with a direct transfer of assets with no protections and no strings attached.

There are estate planning solutions that can be utilized to address virtually every type of concern. To explore all of your options, contact our firm to schedule a free consultation.

Blaine Peterson
Author, Attorney
Parman & Easterday