Pros and Cons: Payable on Death (POD) Accounts

Payable on death accounts can streamline the transfer of assets to loved ones after you pass away. Also referred to as a POD account or Totten trust, a payable-on-death account can be established at a bank or credit union and is transferrable to the beneficiary of your choosing. There are different reasons for including a POD account in your estate plan. It’s helpful to understand how these accounts work when deciding whether to create one.

A financial advisor may be able to help you when it comes to estate planning. 

How Does a Payable on Death Account Work?

A payable-on-death account is a type of bank account that you can use for estate planning purposes. You can create this type of account at a bank or credit union. Your bank may also let you convert any existing accounts you have to a POD account.

The difference between a traditional bank account and a POD account is that the latter has a named beneficiary. This is someone you choose to receive any assets held in the account when you pass away. Depending on your bank, you may be able to name multiple beneficiaries for the same account. Or, you may need choose a primary beneficiary, along with one or more successor or contingent beneficiaries.

How a Payable on Death Account Works

A payable-on-death account is simply any bank account that has a named beneficiary. For instance, a POD account can be a:

• Checking account
• Savings account
• Money market account
• Certificate of deposit account

What makes a bank account payable on death is having a named beneficiary. It’s up to you to decide who to name. If you’re married, your spouse might be a logical choice. But if you’re unmarried, divorced, widowed or separated, you might choose an adult child, sibling or another relative instead.

During your lifetime, you have control over the assets held in a POD account. So, for instance, if you name a beneficiary for your checking account, you’d still be able to spend money in the account as you normally would. Once you pass away, however, the assets held in a payable-on-death account transfer to the beneficiary.

Typically, to claim the account assets, the beneficiary would need to show proof of identification and a copy of the death certificate. Exact requirements may vary by state though.

Pros of Payable on Death Accounts

There are several benefits to using POD accounts to transfer assets. First, assets that are passed to someone else through a POD account are not subject to probate. Probate is the legal process in which your assets are inventoried, any outstanding debts are paid and remaining assets are distributed to your heirs. It can be both time-consuming and costly. By setting up a payable-on-death account, you allow your beneficiaries to avoid probate for any assets held in that account.

That’s an advantage if you want to ensure your beneficiary has quick access to cash after you pass away. Even if you have a will and a life insurance policy, those don’t necessarily guarantee a quick payout to handle burial or funeral expenses or any outstanding debts. A POD account can make it easier for your loved ones to get the funds they need right away.

Also, beneficiaries can’t access any of the money in a POD account while the account owner is alive. This means there’s no chance of them spending down the assets without your knowledge.

Cons of Payable on Death Accounts

As mentioned, beneficiaries of a POD account can’t tap the money while the primary account owner is still living. While that may seem like a benefit, it could also become problematic. If you become incapacitated and your loved ones need money to cover medical care, they could not access your funds. In that instance, having assets in a trust or a jointly owned bank account could be to your advantage.

A POD account also doesn’t offer much in terms of guide rails for the beneficiary. They will receive the money as a lump sum, with no terms or conditions for its use. If you are hoping to set up a loved one for financial success, this may not be the best option.

Another drawback is that payable on death accounts don’t usually offer much in the way of backup planning. If the beneficiary you name passes away before you do and you didn’t name any other beneficiaries, the account would be subject to the normal probate process. However, it’s still worth checking with your provider to see if they have a process that allows for this change, if needed.

Payable on Death Account vs. Trust

You may be wondering whether payable-on-death accounts are better than other types of trusts for estate planning. Trusts allow you to transfer assets to the control of a trustee on behalf of one more beneficiary. You can act as a trustee or have someone else fulfill that role during your lifetime and after you pass away.

Technically, POD accounts are a type of trust. Again, banks may reference them as Totten trusts, informal trusts or tentative trusts. The difference is that POD accounts are easier and less expensive to set up than a traditional living trust. And of course, they only focus on assets held in a bank account.

Setting up a payable-on-death account could make sense if you want to ensure your beneficiaries have a source of ready cash when you pass away. But you may still need a living trust if you have other assets you want to transfer, such as real estate, vehicles, investments or business assets.

How to Set Up a Totten Trust or POD Account

If you want to create a payable-on-death account, you’ll generally need to go through the following process:

1. Contact your bank. Your financial institution can tell you whether it’s possible to add a beneficiary designation to any existing accounts you have or whether you’d need to create a new account.
2. Decide who to add as a beneficiary. Be reasonably sure the person you choose will outlive you and that they will manage any assets they receive responsibly.
3. Inform your beneficiary. Let the person you’re naming as a beneficiary know that you’re creating a POD account. This way, they can familiarize themselves with what they’ll need to do to claim any assets in the account once the time comes.
4. Compare the terms of the POD account with those of your will. Take a look at the terms specified in your will for the POD account assets. In most cases, a payable-on-death account can override a will. Reviewing your wishes can help avoid any potential conflicts among your heirs after you pass away.

Tax Considerations for POD Accounts

POD accounts are useful for avoiding probate, but they are still part of your taxable estate. The full value of a POD account counts toward your gross estate when calculating potential federal estate tax. In 2026, the federal estate tax exemption is $15 million for an individual. ¹ If the total value of your estate, including POD accounts, exceeds this threshold, any excess may be subject to federal estate tax at rates up to 40%.

Some states also apply their own estate or inheritance taxes. The tax treatment of a POD account depends on where you lived and where your beneficiary resides. In certain states, beneficiaries who are not close family members may owe inheritance tax on the amount they receive. For example, some states tax distributions to siblings, nieces, nephews or unrelated individuals, even if a surviving spouse or child would be exempt.

While the money in a POD account transfers directly to the named beneficiary without going through probate, the IRS still requires any interest earned after the date of death to be reported as income. The beneficiary must include this interest on their income tax return for the year they receive it.

Although POD accounts can make it easier to pass assets to loved ones, they are not a substitute for full estate planning. Individuals with larger estates or multiple types of assets may need to consider other tools, like trusts or gifting strategies. These tools can help manage tax exposure and ensure the proper distribution of the estate.

To avoid unintended tax consequences, consider discussing POD accounts with a financial advisor and an estate planning attorney. They can help you evaluate how these accounts fit into your overall estate plan. They may also have suggestions for ways to reduce potential tax burdens on your heirs.

How Payable on Death Accounts Fit Into an Estate Plan

A payable on death account can serve as one tool within a broader estate plan. However, it does not replace documents such as wills, powers of attorney or trusts. POD accounts work best for transferring specific cash assets quickly. Other planning tools can help address property, investments or instructions that require ongoing management.

While a POD account can help reduce delays by giving a beneficiary fast access to funds for immediate expenses, relying only on POD designations can create gaps. This is particularly true if you own a home, hold retirement accounts or want to coordinate distributions among several heirs. Those assets may require other documents or instructions to achieve the result you want.

It’s also necessary to coordinate POD designations with your will. A POD account passes outside of probate, which means the named beneficiary receives the funds even if your will states something different. Reviewing beneficiary designations alongside your will can help reduce conflicts among heirs and avoid outcomes that do not match your goals.

For many people, POD accounts work best when combined with a will or trust to create a complete plan. A POD account can offer simplicity and speed. Meanwhile, other estate planning tools can address more complex needs, long term instructions or assets that cannot be transferred by beneficiary designation alone.

Can You Change a POD Beneficiary After Naming One?

In most cases, you can change the beneficiary on a POD account at any time, for any reason, generally at no cost. All you have to do in most cases is contact your bank and complete a new designation form. This is one of the reasons POD accounts are popular: naming a beneficiary doesn’t lock you into that choice permanently the way some other estate planning tools might.

There is one important limitation: You generally can’t change a POD beneficiary once you become incapacitated. That’s because making this kind of change requires the same legal capacity necessary to set it up in the first place. This is worth keeping in mind if you’re considering updating a designation later in life. Waiting too long could mean the window to make a change has already closed.

A common point of confusion involves whether a will can override a POD designation. The rules on this vary significantly by state. In roughly half of states, a will can revoke a POD beneficiary, but only if it specifically names the account and the beneficiary being changed. A general statement in a will, like leaving “all my bank accounts” to someone, typically isn’t enough to override a POD designation naming someone else. Courts have repeatedly sided with the original POD beneficiary in these situations, even when a will or divorce settlement clearly suggested a different intent, because the specific-naming requirement wasn’t met.

Because of this, it’s generally safer to update a POD beneficiary directly through your bank rather than relying on a will. If your circumstances shift, after a divorce, a remarriage or the death of a previously named beneficiary, contacting your financial institution directly is the most reliable way to make sure the account reflects your current wishes.

Bottom Line

Whether you call it a payable-on-death account or a Totten trust, this type of account can serve a useful purpose when creating an estate plan. The main benefit is its ability to bypass the probate process. Plus, the funds to go directly to your beneficiary quickly and easily. If you’re unsure whether you need a POD account, a financial advisor can explain when it makes sense.

Tips for Estate Planning

• Consider talking to a financial advisor about the best ways to pass on bank accounts, investment accounts and other assets. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. Then, you can have a free introductory call with your advisor matches to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Until you know what you’ll have to retire on no estate plan can be complete. A free, easy-to-use retirement calculator can give you a quick and accurate idea of whether you’ve reached your financial goals.
• A transfer on death account automatically transfers its assets to a named beneficiary when the holder dies. Let’s say you have a savings account with $100,000 in it and name your son as its beneficiary. When you pass, that account, and its full balance, would transfer to him.

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