The owners of many bank accounts, especially savings accounts and certificates of deposit (CDs) name payable-on-death (POD) beneficiaries for the accounts. That means that when the account owner (or the last surviving owner, in the case of a joint account) dies, the POD beneficiary can simply claim the money from the bank. The deceased person’s will doesn’t come into play, and there’s no need for any probate court involvement, either.
When money is left to a payable-on-death beneficiary, it doesn’t pass under the terms of the deceased person’s will. That means the money is not part of the deceased person’s probate estate, and it isn’t under the control of the executor. So if you’re the executor (or administrator appointed by the court), it’s not really your job to help transfer the funds to the POD beneficiary who inherits them.
Still, if the beneficiary isn’t sure how to proceed, you’re likely to be asked for help. And you may be in a good position to give it. If there are other accounts at the same institution, for example, you may know someone at the bank who can give helpful advice. The process shouldn’t be difficult.
You may also be the one to notify POD beneficiaries that they have in fact entitled to some money. Otherwise, unless the deceased person told them, beneficiaries may not know. You’ll be able to see that there’s a POD beneficiary when you look at the deceased person’s bank statements; just look for the term “POD” in the account name. For example, a statement might come addressed to “Florence Knight, POD Account.” The POD beneficiary’s name, however, may not be mentioned; you can find out who it is by contacting the bank in your capacity as personal representative of the estate.
To collect funds in a POD bank account, all the beneficiary needs to do is go to the bank and present ID and a certified copy of the death certificate (if the bank doesn’t already have one on file). The bank will have the paperwork, signed by the deceased owner, which authorized the beneficiary to inherit the funds. The beneficiary can withdraw the money or open a new account.
With a time deposit, such as a certificate of deposit (CD), the beneficiary has a few options:
Leave the funds in the CD until its maturation date. This would make sense if the beneficiary doesn’t need the money right now and the interest rate being earned by the money is higher than what’s available in other investments.
Withdraw the funds. There is usually a penalty for withdrawing money from a CD before its maturation date, but when the CD is inherited, the new owner generally does not have to pay an early-withdrawal fee.
Retitle the CD in the beneficiary’s name. If the beneficiary wants to transfer the funds into his or her own name, the bank will probably need to rewrite the CD at whatever interest rate is currently being offered. So if rates have gone up since the original CD was bought, this could make sense.
POD designations are widely used because they’re simple both for the person who sets them up and the beneficiaries who inherit. Sometimes, however, circumstances can make for complications. If there's a disagreement over who inherits the funds in an account, consult a local attorney who's knowledgeable about state probate law.
If someone names his or her spouse as a POD beneficiary, and then the couple divorces, the POD designation may—or may not—be automatically canceled. Just like the effect on the will, it depends on state law. Any former spouse who wants to claim a POD account should check the law to make sure the designation is still in effect.
It doesn’t have to be a problem when more than one person is named as a POD beneficiary of a single account—commonly, the beneficiaries simply split the money evenly. Problems arise only if the beneficiaries can’t agree on what to do about money tied up in a CD, or if they’ve inherited an asset that isn’t easily divided (a large bond, for example). As always, compromise offers the best solution both for everyone’s pocketbook and for long-term family relations.
It’s uncommon, but some state laws still restrict who can be named as a POD beneficiary. It’s never a problem to name a natural person, but there may be prohibitions against designating a charity or other organization to inherit in this way.
What if the will leaves the account to someone other than the POD beneficiary? Almost always, the POD designation wins--it's a contract with the bank, and can't be changed by will. There are exceptions, however. Some states allow people to revoke POD designations in their wills if the will specifically identifies the account. And Washington state has a "superwill" statute that lets a will override a beneficiary designation. (Wash. Rev. Code section 11.11.020.)