There are many different ways to make an estate plan. One to consider is a payable-on-death account (POD), also known as a Totten trust.
These accounts can help you pass money smoothly and promptly to the people you want when you die. This can present some advantages, such as avoiding probate. But, there are some drawbacks. Here’s what you should know:
Avoiding probate
Probate is a legal process where the court supervises the distribution of someone’s estate. It can help ensure things happen as they should. The downside is that it can lead to major delays in assets reaching the hands of the people chosen to receive them.
Probate also allows people to challenge the will in certain circumstances – which would delay things further or alter the course of distribution altogether. POD accounts do not go through probate, so the beneficiaries will receive the assets much quicker, and it would be much more difficult for anyone to challenge them.
The main disadvantage
If the beneficiary of a POD dies before you, you must update your designation as soon as possible. Unlike certain other financial tools, you cannot name an alternate beneficiary.
What would happen if your beneficiary dies before you (and you did not get around to making someone else the beneficiary) is that the money would go into your estate and be subject to probate (which is what you were trying to avoid).
If you believe a POD account could form part of your estate plan, consider legal help to learn more about setting one up.
