If a loved one has named you as beneficiary of a Payable on Death (POD) bank or investment account, you won’t have to wait until his or her estate is probated in order to receive the funds in that account. When the owner of the account passes away, you as beneficiary will simply need to present the owner’s death certificate to the appropriate financial institution and fill out any required forms. Once this is done, the funds in the account will be handed over to you.

Since you, as beneficiary, have no access to or ownership of funds in a POD account during the account holder’s lifetime, you won’t owe income taxes on the account funds when you inherit them. However, if the account holder owes estate taxes, then you might have to contribute a portion of your inherited funds toward the estate tax bill. Whether or not you’re required to do this will be determined by the terms of the account holder’s Will or Living Trust, and the attorney assisting with the administration of the estate will let you know what steps you need to take.

What about the account holders other final bills and debts? Unless you co-signed for a specific debt, you won’t have an obligation to pay off any bills or debts.

If you have questions about your rights or responsibilities concerning a Payable on Death account, a qualified estate planning attorney can help you.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

You may have heard the term “Totten Trust” and wondered what, exactly, it means. While it sounds complicated, “Totten Trust” is simply another term for a payable on death (POD) bank account. It’s one option for passing on property outside of the probate process.

How it Works

When you establish a Totten Trust or POD account, you’ll designate one or more beneficiaries for the account. When you pass away, the funds in the account will become the property of whomever you’ve designated beneficiary. In order to claim the funds, your beneficiary will simply have to present your bank with a certified copy of your death certificate, show his or her identification, and fill out any required forms. Once this is done, the account belongs to your beneficiary.

If you’re establishing a Totten Trust and you want to name more than one beneficiary, leaving them unequal shares of the account, you’ll need to specify this on the beneficiary designation form. Unless it’s specified otherwise, beneficiaries generally inherit this type of account in equal shares.

Changing Beneficiaries

Because funds in a Totten Trust pass outside of the probate process, the account is not controlled by your Will. So, if you want to change your account beneficiary, you can’t do so by mentioning it in your Will. Instead, you’ll need to fill out a form directly with your bank, making the change. What happens if you try to change your account beneficiary by simply mentioning it in your Will? Absolutely nothing. The bank will distribute your account based only on the most current beneficiary designation form.

A Totten Trust is just one of a variety of methods for avoiding probate. Your estate planning attorney can help you determine which methods are most effective for you.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.