One of the simplest methods for avoiding probate is to designate a beneficiary or beneficiaries for your bank accounts. An account with a named beneficiary is called a Payable on Death or POD account. When someone passes away the account that is subject to the POD designation passes directly to the beneficiary or beneficiaries rather than through the probate process. In that way, the beneficiary received the assets in the account like a beneficiary on a life insurance policy or retirement account.
Although this is a simple probate avoidance method, it does come with a few disadvantages:
- It is relatively easy to unintentionally disinherit a loved one by forgetting to name them as a beneficiary;
- It is not effective as a comprehensive estate planning method and requires additional steps for other parts of your estate;
- Changing your Wills does not change your beneficiaries of your POD account. Updating or changing beneficiaries means contacting each individual financial institution to make the change;
- If a beneficiary dies before you do, you will need to change your beneficiary designation to ensure that the account continues to avoid probate.
Payable on Death accounts can be a useful and effective part of your estate plan, but it should not be the only action you take when it comes to estate planning. You should still meet with an estate planning attorney to discuss the drafting of your Will and other documents.
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