Bank Accounts and Death or Incapacity

You surely have at least one bank account, so what would happen to it if you become unable to make decisions or when you die?

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If you are the sole owner of the account, and something happens while you are still alive, but you become unable to access it, due to incapacity for example, your family will either use a Power of Attorney, if you have one, or file for an Adult Guardianship Proceeding.

But, what happens to the bank account(s) when you die? Well, one of the options available is having a Payable on Death (POD) designation on file with each bank, for every account.

A POD designation can be set up for savings, checking, certificates of deposit, U.S. savings bonds, and investment accounts. Upon the death of the account holder, the funds in the account pass directly to the named beneficiary, no court proceedings required.

Setting up a POD account is usually very easy. Typically, there’s a form you have to complete and sign to select your beneficiary or beneficiaries. Additionally, you can change beneficiaries whenever you like or name several beneficiaries (allowing them to split the money).

After the death of the POD account holder, NO probate proceedings will likely be required and the beneficiary can claim the money in a fairly simple process. Often, the beneficiary will need to show ID, provide a copy of the death certificate, and complete some forms provided by the financial institution.

Some Pros and Cons
So, POD sounds great because they are easy. But, there can be significant problems using this as the primary tool for passing along what you’ve worked to build.

What if a beneficiary predeceases you? If you do not name new ones before you die, then your estate is back to probate, thus negating the primary advantage of establishing the POD account in the first place!

What if the beneficiary is in the middle of a bankruptcy, divorce, or lawsuit? Because a POD account transfers the money to the beneficiary without any protection, your beneficiary may lose his or her entire inheritance simply because the death of the POD account owner occurred at the “wrong” time.

What if you are in a car crash and rendered legally incapacitated and unable to make decisions? The named beneficiary cannot access funds to provide for your needs. POD accounts only function at death. They provide no protection in the event of your incapacitation. Have a Power of Attorney in place, or send your family to court.

Minor children? If a POD beneficiary is a minor under the age of 18, then a court-supervised guardianship or conservatorship may need to be established to manage the minor’s inheritance.

WOW, that’s a lot to consider, right? And we are talking only about bank accounts. To give you a bigger picture, you will likely need to have a Will, maybe a Revocable Living Trust, absolutely a Power of Attorney and a Healthcare Directive in place to insure that you and your property are protected in case you become incapacitated and to make sure that your property goes where you want it to go after you die.

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