What is a Pay On Death Account?

A pay on death account is a special type of bank account that allows for all of the money in that account to pass to the named beneficiary of the account without having to go through the probate process.

When the person who owns the account dies, the person named to take it over simply has to show the bank a copy of the owner’s death certificate and they are entitled to the money in the account.

Why Use a Pay On Death Account?

There are a couple of reasons you might want to establish an account like this.

First, pay on death accounts are very easy to set up. You simply go to the bank, tell them you want a specific account to be a pay-on-death account, fill out the paperwork naming the beneficiary, and you’re all set.

Second, pay on death accounts allow you to bypass the probate process. Even if you have a will and/or a trust set up, the money in a pay on death account transfers to the person that you named in the designation.

Third, pay-on-death accounts allow the beneficiary to have almost immediate access to the money in the account. This is helpful if you have family members that might need access to the account for living expenses or other important items.

Why Not Use a Pay On Death Account?

While pay-on-death bank accounts are extremely easy to set up and use, there are some potential drawbacks.

First, if you do not remember to keep the beneficiary designation up to date, you could unknowingly cut out some people from that money.

For example, you set up a pay-on-death designation naming your kid as a beneficiary and then you have another kid and forget to add them. In that case, only the kid named would be entitled to the funds.

Second, keeping with the example, if you name a minor child as the beneficiary on an account like this it can actually cause more a headache than if the money went through probate as the court will be forced to appoint someone to watch over and manage the money until the kid becomes an adult.

The reason this is a problem is there are significant fees associated with appointing these type of people to watch over assets. It’s very likely that by the time your kids are old enough to get the money that there is very little money left because it has all been paid out in guardianship and conservator fees.

If you’re interested in transferring your accounts easily and without hassle, then a pay-on-death designation is a great idea. Just be sure you think through everything and execute it the right way.


Christopher Small

P.S. Do you have kids? Have you completed guardianship paperwork? Have you done it correctly? Click here to find out what happens if you don’t do anything: Are you okay with a judge choosing the guardians of your children?

P.P.S. Do you own a business? Do you have a plan so the business, and your family, can survive if something happens to you? If not, click here to learn how simple it is to protect your business and your family from tragedy: 5 Ways to Protect Your Business from Catastrophic Failure.

P.P.S. Do you have no kids and think you don’t need an estate plan? Single and think a will is only for married couples. You couldn’t be more wrong. Click here to learn more: 5 reasons estate planning is a must have even if you don’t have kids.

Christopher Small is a Kirkland estate planning attorney who helps people get rich and live forever. He is also the owner of CMS Law Firm LLC.