Planning for one’s own death can be difficult from an emotional and financial standpoint. Often, individuals hope to have enough money to cover their own end-of-life costs without imposing on others, while at the same time having some assets to bequeath to their loved ones. It can be difficult for a Texas resident to know just how to plan to meet their various end-of-life goals.
One goal that many individuals strive for is to avoid the probate process all together. While probate is not in itself bad, it can be time-consuming and costly. Many choose to use estate planning strategies to avoid having their asset pass through it.
There are different ways to reduce an individual’s estate to avoid probate, and one option is the use of payable on death (POD) accounts. This post will discuss POD accounts and how they work. However, no part of this post is legal advice or financial guidance.
The basics of payable on death accounts
When an account is set up as payable on death, it is automatically transferred to a person when the original owner dies. For example, a spouse may make their partner the beneficiary of a POD account so that the partner becomes the account’s owner without the asset from having to be probated. Different types of accounts can be set up as POD, and it is important that individuals seek guidance to ensure that their account documentation meets their end goals.
Why payable on death accounts are useful
As stated, POD accounts do not pass through probate as part of a decedent’s estate. Rather, they function as unofficial trusts. The accounts cease to be owned by the decedent at the time of their death and become the property of the beneficiary in full.
There are advantages to using POD accounts to avoid probate, but individuals should understand the tax implications of using them. Taxes may apply to incomes received from such accounts, and future inheritance taxes may impact beneficiaries’ estate when they die. Counsel from estate planning attorneys can help individuals understand these and other concerns.
