A payable-on-death (POD) account, also referred to as a Totten trust, is essentially a financial account with a beneficiary designation. You may have a POD account at your bank with $10,000 in it, for example, and you have named one of your adult children as the beneficiary. When you pass away, they become the owner of that account and the $10,000 it holds.
Notably, this means that a POD account skips probate. It does not have to go through estate administration because it immediately leaves your estate and becomes the property of the beneficiary. Even if your estate plan had been written naming someone else as the beneficiary who should receive that money, the designation on the account itself will take precedence.
Avoiding estate disputes
The first reason why this is sometimes beneficial is that it can help reduce estate disputes. Beneficiaries may want to challenge the will when they find out how assets are being divided. But even if they disagree with the beneficiary designation on the POD account, there is nothing to challenge. This ensures that the named beneficiary actually receives the money.
It can happen quickly
Another benefit of a POD account is that this process can often happen relatively quickly. The rest of the estate could be tied up in probate and potential challenges or conflicts for weeks or even months. But the beneficiary can take over the POD account as soon as they demonstrate to the financial institution that you have passed away. This can be a quick way to give someone money at a critical time.
Not all estate plans use POD accounts, but it is very important to understand all of the potential legal tools you have at your disposal when making your plan.