A payable-on-death (POD) account is a type of account designed to transfer money to a beneficiary. You can create this account initially, or you may be able to change accounts that you already hold into this format. Either way, you will be asked to choose a beneficiary at this time, and you will put that on record with the financial institution.
As the name implies, the change in ownership takes place when you pass away. Financial institutions may need proof of death, but the transfer is otherwise instantaneous. The beneficiary you named is granted legal access to your account and all of the funds within it, which they can use however they see fit.
What are some reasons to do this?
This is different than transferring assets through your will, and that is one reason that people use POD accounts. They do not want their assets to go through probate. Since this type of account transfers instantly, it skips the probate process and is immediately owned by your heir. It does make it faster and easier for them to get their money.
Another reason to use this arrangement could be that you believe your heirs will get into a dispute over who should get the money from that account. If you put it in your will, you’re worried that they will contest the will. But if you simply put it in a POD account, then the beneficiary gets it, and the other heirs do not have the option to challenge it because the transfer has already taken place.
If you are interested in using one of these accounts, be sure you know what legal text steps to take and how to set it up.