As an important part of many estate and inheritance plans, payable on death accounts afford people significant benefits. These accounts allow you to name a beneficiary who will receive the money you have in the account immediately after your death, and without the necessity of that money first having to go through the probate process.
While these benefits are significant, using a payable on death account properly nevertheless require some careful thought and consideration. If you have a payable on death account, are considering acquiring one, or want to know how you can weave them into your estate and inheritance plans, here are some key issues you will want to understand.
Payable on Death Accounts
A payable on death account is usually very easy to set up. All you do is go to your local bank or financial institution, ask to open a new account, and fill out the proper forms. One of these forms will include a section in which you can designate a beneficiary. The beneficiary can be almost anyone you like, and you can list more than one person as a beneficiary. When you select the beneficiary, that person, or persons, will receive the money you have in the account following your death.
One of the first things you need to be clear about when you have a payable on death account is selecting the right beneficiary. You are almost always going to select a competent adult as the person who receives the money from your payable on death account. Should you choose a child, for example, that child will not be able to directly inherit your property, and legally, the child will need someone to manage it on his or her behalf until they reach the age of majority. The same goes with selecting an adult with disabilities, an elderly person who has lost capacity, or anyone else who is not able to manage the money on his or her own.
Another important issue you will need to consider is the question of how the payable on death account will affect your inheritance plans. If, for example, you want to create a plan that will leave equal inheritances to each of your three children, you will need to take the amount of money you have in the account into consideration. If you name one of your children as the sole beneficiary of the account, that child will receive all the money you have in the account regardless of your desire to pass equal inheritances to all three.
While this can be effective if, for example, you want that child to act as your executor and to pay any bills that might arise during the estate settlement process, you nevertheless have to take this beneficiary designation into account as you craft your inheritance plan.
To learn more, please download our free Estate Planning for Florida Seniors here.
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