Payable-on-death accounts, such as annuities, life insurance and federal FERS accounts, are designed to transfer assets directly to a named beneficiary upon the account holder’s death, bypassing probate. They are essential to many people’s estate plans because they bypass probate and can quickly transfer large sums to beneficiaries.
However, issues can arise if beneficiary designation forms are not filled out correctly or if there are other paperwork errors.
Incorrect or incomplete beneficiary designations
One of the most common issues with POD accounts is incorrect or incomplete beneficiary designations. If the beneficiary’s name is misspelled, or if essential information is missing, the financial institution may not be able to identify the intended recipient. This can lead to delays in the distribution of assets and may require legal intervention to resolve.
Multiple beneficiaries and conflicting instructions
When multiple beneficiaries are named, and the instructions are unclear or conflicting, it can create confusion and disputes among the beneficiaries. For example, if the percentages allocated to each beneficiary do not add up to 100%, or if there are contradictory instructions in different documents, the financial institution may freeze the account until the issue is resolved.
Outdated beneficiary information
Another common problem involves outdated beneficiary information. If the designated beneficiary has passed away or if there has been a significant life change (such as a divorce or remarriage), the account holder may forget to update the beneficiary designation. In such cases, the assets may go to unintended recipients or may need to go through probate.
Paperwork errors and legal implications
Errors in the paperwork, such as missing signatures or incorrect account numbers, can also cause significant delays. These errors may require additional documentation or legal proceedings to correct, which can be time-consuming and costly.
Problems with POD accounts can have a broader impact on estate planning. If the assets in the POD account are not distributed as intended, it can affect the overall distribution of the estate. This can lead to disputes among heirs and may result in a lengthy and expensive probate process.
Steps to avoid problems
To avoid these issues, it is crucial to regularly review and update beneficiary designations, ensure all information is accurate and complete, and consult with a financial advisor or estate planning professional. By taking these steps, we can help ensure that all our assets are distributed according to our wishes and avoid potential problems with our POD accounts.