If there was a simple way to get assets to your loved ones faster and easier after you are gone, would you do it? Using a “payable on death” or “POD”, also known as a “transfer on death” or “TOD”. beneficiary correctly will do that.Some types of assets are designed to pass to your beneficiaries outside of your estate. Retirement accounts, life insurance, some bank accounts, and some bonds have a “payable on death” feature. That means you can name a particular person (or group of people) or charity to receive that asset after your death. You are probably most familiar with that feature on life insurance, but other assets can work the same way. The money from the insurance, retirement plan or bank account is paid directly to your named beneficiary as soon as the beneficiary sends in a claim form and death certificate. This is faster than money will reach your beneficiary through your estate.
If an asset has a POD feature but you do not list a beneficiary, it will pass through your estate. By comparison, assets left to a beneficiary through an estate cannot be distributed to him or her until after the “creditor claim period” ends. That is usually at least 120 days after the date of death, depending on when the estate is opened and the newspaper notice to creditors is published.
Naming a beneficiary on POD assets also saves money. While Clerk of Court fees for probating a North Carolina estate are not outrageous (particularly when compared to other states), why pay more money in Clerk fees than you have to? If you own a retirement account but don’t list a beneficiary, when those funds pass through your estate, the Clerk of Court will collect a fee of four dollars per thousand. In an estate I worked on recently, a retired gentleman passed away with a retirement account of $250,000. He didn’t name a beneficiary, so the funds went through his estate. The Clerk took a $1000 fee on it. That expense could have been avoided if the gentlemen had listed his beneficiary by name on the POD form.
Another advantage of naming a beneficiary when you can is that it protects those assets from estate creditors. Because those assets pay outside of the estate, estate creditors cannot reach them.There is one time you should not use a POD beneficiary feature. You should never, ever list a minor child by name on the POD beneficiary form. Because minors cannot legally own property, listing someone under age 18 on a beneficiary form means that the Court will have to appoint a guardian to receive the funds for the minor, and the Clerk will take a fee each year. Similarly, never name as a beneficiary a disabled adult who depends on means-tested government assistance. Leaving money outright to such a disabled adult can disqualify them for helpful government programs. To safely leave funds to minor children or disabled adults, you’ll need to set up a trust to receive and manage the benefits, and name the trust on the POD beneficiary form.
It is rare that all or almost all of someone’s financial accounts have POD features. When that is the case, though, think about leaving some money going through your estate, without naming a POD. Your estate will need some liquid assets to pay expenses and claims. Except for those limited circumstances, name the person, people or charity you want to receive your POD asset on the beneficiary designation form. If you don’t know if an asset has a POD feature, ask. Make good use of your POD assets, and your loved ones will be glad you did.
Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough, NC. She can be reached at 919-732-7300 or firstname.lastname@example.org.
This article was last updated in January 2020.