Payable on Death Accounts

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Rest in Peace (RIP) is a popular etching on grave markers. If you’re leaving money to your heirs and you’d truly like to RIP, you might want to set up a POD account.

What’s a POD account? The acronym stands for “payable on death”, and it’s way of passing money to your heirs that’s less costly than creating a living trust agreement. You can establish a POD by completing paperwork at your local bank. POD accounts are insured by federal deposit insurance and cost nothing to set up.

The key to creating a POD account is titling your bank accounts or certificates of deposit to include the beneficiary of your choice. Beneficiaries can be friends, relatives or even nonprofit organizations. You can open separate accounts for each beneficiary, or you can set up a single account with different beneficiaries.

Each beneficiary’s share of the POD account is federally insured, up to $250,000. For example, suppose you have four beneficiaries listed on a POD account. That’s $250,000 times four, which means your account is insured for $1 million. You should note that the federal insurance rules change when your beneficiaries number six or more.

Upon your death, each heir will receive a portion of the funds in your POD account. Because POD accounts are revocable, you can add or delete beneficiaries—or cancel the entire agreement. In addition, though the account will be subject to estate taxes (if any), there’s generally no need for probate proceedings in order to distribute the money.

Depending on the size of your estate, POD accounts can be a valuable planning tool. Talk to your financial advisor to find out if establishing one is a good idea for you.

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