The use of a payable-on-death bank account has become a more popular estate planning option recently, as more people create plans centered on probate avoidance. Payable-on-death bank accounts, also known as beneficiary designation accounts, revocable bank account trusts, and by other names, are a simple and effective way to transfer property outside of the probate process. However, using a payable-on-death account as part of a comprehensive estate plan is something you should only do after consulting with your lawyer. Until then, here are several questions people commonly ask about payable-on-death accounts.
What is a payable-on-death bank account?
When you choose to create a payable-on-death bank account in Florida, you create a tool that will allow the money in that account to pass to a chosen beneficiary immediately upon your death. In much the same way that a life insurance policy pays the beneficiary a benefit upon your death, the money in your bank account will also transfer to the person you have chosen as your beneficiary. Payable-on-death accounts can be any kind of deposit accounts, including checking, saving, and money market accounts.
Who is the beneficiary?
Anyone you choose. When you set up your payable-on-death account you can choose anyone you like as the beneficiary. If you change your mind you can update your account by naming a new beneficiary. In order to change the beneficiary designation you will have to refer to the rules your financial institution has established.
Can the beneficiary use the account?
No. The beneficiary is only entitled to receive the money you have in the account after you have died. Until that happens, or until you lose the ability to make choices for yourself, you retain the right to use the account funds in any way you wish. This means, for example, that if you create a payable-on-death account and choose the beneficiary, you can spend all the money in that account in any way you see fit. The beneficiary has no legal right to use the account nor holds any interest in that account, until you die.
How does a payable-on-death account avoid probate?
Probate is simply the process through which the property left behind by deceased people is transferred to new owners. Every state, including Florida, has its own set of probate laws that says what does, and does not, have to go through this process. Money you have in a payable-on-death bank account is exempt from probate, as is other types of property.
On the other hand, if you were to hold the same money in an account that didn’t have a payable-on-death beneficiary, that money would likely have to go through the probate process.