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5 Mistakes with POD (Payable-on-Death) Forms

Posted on: April 1st, 2016
beneficiary designationsPayable-on-death (POD) forms can be helpful in estate planning, but sometimes these documents cause issues. Problems with POD forms occur when the account owner has not been educated about how these forms can affect the administration of one’s estate. 

When structured properly, a POD agreement ensures that assets transfer to the named individual upon the account owner’s death. Other variations of this arrangement may be done through transfer-on-death (TOD) forms and beneficiary designation forms. These documents are available to identify the person or entity that will receive assets upon the death of the account owner. If not maintained and reviewed regularly, these forms could become outdated and fail to identify family members in a growing family, risk potential loss to creditors if the beneficiaries are no longer living, or could compromise a beneficiary’s financial situation depending on their needs. 

Our estate planning attorneys note a few POD mistakes below:
  1. Not updating. If provisions in a will were made more recently than an outdated POD, the testator of the will might not realize the provisions of one’s current will do not affect the distribution of assets for which a POD or beneficiary designation is in place. For instance, while an individual might name a grandchild on a POD, if more grandchildren are born in between the time the form was completed and the grandparent’s death, these grandchildren would not receive a portion of the account even if the testator provided for the grandchildren to receive other assets from their estate in their will. Also consider marriages and divorces. A divorced spouse might fail to remove their former spouse on a POD, which means an ex-spouse would inherit assets. Life changes and regular estate plan reviews help to prevent this mistake.
  2. Naming the executor. Sometimes an account owner has the best intention of leaving their assets in the care of a trusted friend or relative who will serve as executor. Without professional guidance, the account owner might designate the executor as the beneficiary of accounts, trusting the executor will carry out distribution of assets as per a will. This is a poor planning move as it legally entitles the individual named as executor to receive all assets and does not obligate them to pass assets on to those individuals whom the account owner may have intended to receive the assets. Instead, keep POD designations up-to-date with the specific individuals the account owner plans to transfer the assets to. Another option would be to create a trust and explicitly designate the trust as the beneficiary of an account. Not only may the settlor of the trust modify trust beneficiaries, but this can also add an extra layer of protection and shields assets from beneficiaries’ creditor claims.
  3. Naming a minor. Although an individual might want to provide for a young family member, leaving assets outright to a minor can create problems. As noted in the previous point, a trust can be named as beneficiary of an account and the trust settlor can include special provisions in the trust document that direct how and when a minor-aged beneficiary may receive trust distributions.
  4. Naming someone with special needs. Individuals with special needs often rely on public benefit programs that have strict eligibility requirements. Leaving assets outright to someone with special needs might express the decedent’s care and sentiments, but could disqualify the special needs beneficiary from important benefits they might rely on. To help avoid a problem like this, a Supplemental Needs Trust (SNT) can be set up for the beneficiary and the SNT can be named on POD forms.
  5. Not considering how the account is titled. Some financial accounts and other assets offer different ways of holding title. For example, a parent and adult daughter might have an account owned as JTWROS (joint tenants with right of survivorship). If the POD reflects a son’s name and the parent dies, since the account is jointly owned with the daughter by JTWROS, the account immediately becomes the property of the daughter upon the parent’s death. Consider re-titling assets during the account owner’s lifetime to align with the wishes of the account owner.

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By Attorney Samantha Reichle


 
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