The estate planning process involves bequeathing your assets to loved ones while making sure that your wishes are honored and potential disputes are minimized. One effective tool in this process is a payable on death account, also known as a Totten trust, which allows you to assign parties who will receive the funds therein immediately upon your passing, bypassing the probate process.
A payable on death account is triggered by the client’s death to immediately transfer the funds to the designated beneficiaries. This comes with several benefits for the beneficiary, including the following.
1. Quick access to funds
A significant benefit of a payable on death (POD) account is that it allows beneficiaries to access funds quickly after the account owner’s passing. While other estate planning tools, such as wills and life insurance policies, may not guarantee a rapid payout, a POD account provides immediate access to cash. This can be especially helpful for covering burial costs, funeral expenses or any outstanding debts without delay.
2. Avoids probate process
POD accounts bypass the probate process, allowing assets to transfer directly to the designated beneficiaries by contract, rather than through a will. This streamlined transfer means that your loved ones receive their inheritance without the time-consuming and often costly legal proceedings associated with probate.
3. Increased FDIC coverage
Another advantage of a POD account is the potential for increased coverage under the Federal Deposit Insurance Corporation (FDIC). The standard coverage limit for an individual’s assets at a single financial institution is $250,000. However, by establishing multiple POD accounts with different beneficiaries, account holders can significantly boost their coverage up to $1,250,000. This allows for better protection of assets while providing financial security for beneficiaries.
4. Control over distribution
While the account owner retains full control over the assets during their lifetime, they can designate multiple beneficiaries for a POD account. This flexibility allows account holders to decide how their loved ones will receive their intended share.
Understanding how POD accounts operate in California is important if you’re considering one, and legal guidance can help you effectively establish these accounts to align with your estate planning goals.