When you die, your personal assets form your estate and those assets are typically subject to the probate process. However, you can bypass probate without having to give up control of your assets by adding payable on death beneficiaries to your accounts. Accounts with POD designations do not form part of your estate when you die.
State laws on probate and estate settlement vary but in most states, you can create a revocable living trust to hold your assets. As the name suggests, you can revoke the trust at any time and since you retain control of the trust, the trust must operate under your Social Security number. When you die, the assets in the trust are disbursed to the beneficiaries of the trust as opposed to the beneficiaries of your estate. When you add POD beneficiaries to your bank or investment accounts, you create an informal revocable trust and this means the funds in these accounts do not go through probate.
Your POD beneficiaries can close your accounts simply by providing your bank or investment firm with a copy of your death certificate. The assets that form part of your trust are subject to the claims of your creditors and heirs and a probate judge ultimately decides how to disburse those assets. It costs nothing to add a POD beneficiary to your account, whereas a contested probate process can prove costly. Your POD beneficiaries can access your account upon your death, while it could take months or even years for the probate process to reach its conclusion.
If you live in a state with marital property rights then your individual retirement arrangements may bypass probate even if you did not list a POD beneficiary on those accounts. In such states, your spouse typically assumes control of your IRA even if you named someone else as the POD beneficiary. You can only include your IRA in your estate if your spouse signs a spousal consent form that waives his or her right to your IRA in the event of your death. In states without marital property rights, your IRA does form part of your estate if you name a POD beneficiary.
In most instances your heirs and creditors cannot make claims on assets that you passed directly to your heirs with the use of POD designations. However, if someone can prove that you named someone as a beneficiary under duress or that some other factor calls the beneficiary designation into question, then the probate judge could nullify the designation and include the disputed account as part of your estate. If you have a POD beneficiary on a joint account, then the account normally becomes the property of the other account owner rather than your estate upon your death, and then passes to the beneficiary upon the death of the last surviving account owner.