A payable on death (POD) account is any type of bank account that you designate a person to take over upon your death.
Name a “Beneficiary”
In order to make an account payable on death, you must complete a designation form with your account holder. It is important to reevaluate these designations each time you up-date your estate plan. If your beneficiary passes away before you, then you will need to name a new beneficiary.
Beneficiary Inherits Account
After your death, your account beneficiary can easily take over the account. He or she will only need to provide a certified copy of your death certificate, and in some states proof that there is no estate or inheritance tax payable in order to take possession of the POD funds.
Your pay on death beneficiary does not owe income tax on an inherited account. If any income from interest was earned on the account before the takeover, that amount will be reported on your, the decedent’s, final income tax return and estate tax return.
If estate or inheritance taxes are due, your loved one may have to use some POD account funds to help pay this amount. This may depend upon whether or not you have made other provisions in your Last Will and Testament to cover those taxes.
A POD option may not be the best choice when you have multiple beneficiaries of your estate plan. The person named as your POD for your convenience in order to have funds immediately available for your funeral or last medical expenses may not be willing to share the remaining funds with the other beneficiaries as you intended.