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When PODs Go BAD

6a017d3e6b2617970c0192ac948ab3970d-320wi.jpgAre payable on death accounts a simple way to pass assets to heirs or are they a mistake? It sure sounds simple. With a payable on death account or paid on death account, you name a beneficiary who gets the account when you die-no probate, no hassle ... How can they go awry? If they contradict an estate plan that's already in place.

Things that appear simple can be complex. So it is in life, and so it is in estate planning. For example: the simple "payable on death" account.

Forbes recently featured this subject in an article titled "When Payable On Death Accounts Backfire."

The promise of a "payable on death" account cannot be undersold. Funds subject to such an arrangement escape probate and transfer straight to the named beneficiaries. No muss, no fuss.

On the other hand, whenever an asset passes "outside" of your estate by avoiding probate, it may not be in sync with your overall estate plan. This is true when you really intend for all of your heirs to share in your estate equally. If you have any accounts "payable on death" to just one of your heirs, then he or she will receive more of your estate than intended.

Perhaps you want a particular account "payable" to the heir who also will be your executor. Your thinking is that such a move will enable them to have ready cash for funeral and other final expenses when needed. To avoid misunderstandings and hard feelings, make your intentions clear in your estate planning legal documents. For example, you could provide that any proceeds left after your funeral and final expenses will become part of the inheritance for that heir with an adjustment made to equalize the shares of the other heirs under your estate plan.

In short, "payable on death" accounts and other direct methods to designate beneficiaries outside of your estate planning documents can be incredibly useful when used correctly. Unfortunately, it can also be downright counterproductive if they are not properly taken into account.

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