When you write your will, you decide to include all of your financial accounts, along with instructions on how your heirs should divide up those assets. These accounts may be very simple, such as savings and checking accounts, or they may be much more complicated, with everything from overseas investments to life insurance policies.
But what if some of these accounts are payable on death (POD)? You can designate them this way when you set them up. If you’ve done so, is the will that you’re writing still going to apply?
POD accounts skip probate
In short, no, your will is not going to apply to these accounts. The reason for this is that they skip probate and they just transfer directly into the name of the person that you chose when you set up the account.
For instance, maybe you made your main bank account Payable on Death to your eldest child. You can write in your will that both of your children need to split the money in that account, but that money is still legally going to pass into the ownership of your eldest child. They can still split it with their younger sibling if they want to do so, but they can also opt not to follow the instructions in your will and they are not breaking the law in any way.
Another example is a life insurance policy. Typically, when you set this up, they ask you to choose a beneficiary who gets the payout if you pass away. This also skips probate and goes directly to that beneficiary once your death has been proven to the life insurance company. You can leave instructions for your heirs if you want them to divide the money, but they are not legally obligated to do so.
Why do people use these?
Payable on death accounts are often used because they are a simple way to transfer assets and it ensures that those assets won’t get bogged down in probate. But it also means that you have a lot less control over what happens as long as that designation remains. It’s very important to consider this when setting up the accounts and when getting your estate plan in place. Be sure you know what options you have.