If you use a will to distribute your assets, your bank accounts are going to enter your estate as soon as you pass away. These assets will then be distributed by the estate executor. If there is no will, the court may have to determine who is supposed to inherit your assets.
You may wish to avoid this process. Maybe you want to make things go more quickly or you’d like to avoid probate entirely. Maybe you just want to guarantee that you know exactly who is going to get that asset, making it so the court doesn’t have to rule. One way to do this is to use a Payable On Death (POD) account.
How does it work?
A standard bank account is not going to pay out to someone when you pass away, but you can add a beneficiary designation to your account. It may help to think of this similarly to how you create a life insurance policy and then pick a beneficiary who will get the payout from that policy. This is similar, in that the person you choose immediately gains control of the financial assets in that bank account upon your own passing.
One thing to remember is that you don’t have to put this account into your will if you have used a POD account. The beneficiary designation is going to take precedence anyway, so the will is going to be ignored by the court, and putting instructions regarding the account can just lead to estate disputes. If you want to make changes, you have to change the beneficiary designation itself.
There are a lot of different options to consider when you’re making an estate plan, so be sure you think about them all carefully.