Downside to bank account Payable on Death beneficiary?

July 9, 2019 4:46 PM

My bank allows me to add Payable on Death beneficiaries to my account that supposedly bypass probate when I die. Is there any downside to this?

The email from the bank says:

*Fulfill Your Wishes
You can make sure your money is transferred to the loved ones you choose after you and any co-owners pass away.

*Increase Coverage
Adding a beneficiary may increase your FDIC insurance coverage. You can add up to 10 individuals as beneficiaries to each account, excluding IRAs, business and trust accounts. Learn more about FDIC deposit insurance coverage.

*Bypass Probate
POD accounts (those with Payable on Death beneficiaries) typically are not subject to probate. For specific questions about the probate process and estate planning, you should consult a financial adviser.

*Maintain Control
Only you and any co-owners have ownership of your account(s), and your beneficiaries cannot access or view them.

As I have a healthy skepticism of banks doing anything in my interest that doesn't also benefit them, is there any downside or catch on my end? The only thing I can see is that it requires my beneficiary's social security number, which means it's one more place where that person's identity can be stolen if there's a hack. Anything else?

posted by bluecore to Work & Money (9 answers total)

I have had a friend as POD on my account for several years. Granted there is a possibility of someone's SS number being hacked but probably no more so than with any other financial institution.
The reason I did this is because as a single person, I wanted someone to be able to pay any remaining bills from my funds without the account having to go through probate. Probate can take a while in some states. This person is also my named executor and beneficiary of my will, but naming a POD is a separate process and they don't have to be the same person.
The one area to be aware of is to make sure that your will and your beneficary designations don't conflict. In others words your will says "my bank account goes to x" but you put "y" as a POD . The bank won't care or be obligated to what is in your will if there is a POD. The same can be said for IRAs.
I suppose the advantage from the bank's perspective is that by allowing a POD they have a better chance of retaining the funds and getting a new customer?
That aside, I personally don't see much downside to a POD or naming beneficiaries on other accounts such as IRAs etc. IMO wills should best be used for the disposition of property that isn't or can't be handled in another fashion.
As usual, your mileage may vary.
posted by jtexman1 at 4:59 PM on July 9, 2019

This is usually to your advantage specifically because of what jtexman1 says about avoiding probate, but without giving someone access like they would if you have a joint account. The biggest downside is that it's sort of a "set it and forget it" thing, so you might set up someone to be the POD person, go live your life, your circumstances change and you die and your money goes to someone you haven't thought about in a decade. My opinion is always "Hey you're dead, what do you care?" but having to stay on top of remembering this is the only real downside that I can see.
posted by jessamyn at 5:12 PM on July 9, 2019 [2 favorites]

I'm not a lawyer, this isn't legal advice, but my understanding is the big benefit is the speed. Wills are much easier, in a sense, because they allow you to say stuff like, "All my investments go to my spouse, or if they die before me, 50/50 to the kids." Then you don't have to set beneficiaries for each account because the executor is going to go down the list of accounts that you helpfully provided and send them a death certificate and make sure the money goes where it's supposed to go. The beneficiary for the account is going to be whoever it was when you set it, and a lot of people lose track of small CDs or retirement accounts and suddenly you've bequeathed $1,000 to your ex from thirty years ago.
posted by wnissen at 5:36 PM on July 9, 2019

I spoke to an estate lawyer and they advised me to set up all my financial accounts with POD.

The one catch is that because it bypasses probate you will need to make sure to update all your POD instructions at all your bank accounts if you want to change beneficiary designations. Updating your will will NOT suffice, the POD will take precedence.
posted by phoenixy at 6:06 PM on July 9, 2019 [2 favorites]

I am a senior citizen. I have a POD with my son (and an alternate). I have it so that he can pay for my funeral and burial without waiting. I am at peace with that. I can think of no downside unless it is someone you do not trust.
posted by JayRwv at 7:28 PM on July 9, 2019

Some people leave a checking account in the estate to give their executor something to pay bills with (medical, tax, utilities, etc.). But otherwise, POD works well.

I've seen accounts transfer both ways, and POD was faster and simpler, which benefits the bank (even if the beneficiaries move the money).
posted by mersen at 2:42 AM on July 10, 2019 [1 favorite]

What phoenixy said is important - beneficiaries supercede wills (in the US). You often only set up your beneficiaries when you open an account, then forget about them. Don't be afraid to name beneficiaries, but please, please, please, review them periodically, and especially upon any life changes like marriage, divorce, kids.
posted by jennypower at 6:02 AM on July 10, 2019

I have found that banks want your beneficiaries SSN, but if you are insistent that you don't give out other people's SSN, or only give out the last 4 digits, they will accept that. The person's name, address, and DOB is plenty to identify a person.
posted by H21 at 7:45 AM on July 10, 2019

PODs are fine as explained above. Just make sure that your POD person is not counting on receiving substantial money when you pass. If they are, you'll have to remember to leave the money mostly untouched during your life.

Also, if your purpose is to provide liquid assets to your estate for bills, etc., make sure your POD person can be relied upon to use it for that purpose. Even if your POD person is your executor, they could simply resign as executor and keep the money.
posted by JimN2TAW at 12:51 PM on July 10, 2019