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Why you should update pay-on-death account beneficiaries

On Behalf of | May 23, 2023 | Estate Planning

Did you know that you can set up your bank and money market accounts to pay out upon death? You may even have insurance, retirement funds and other accounts with payable-on-death options.

Therefore, you should contact each financial or transfer-on-death securities account you have and set up your beneficiaries. However, you should also keep these payable-on-death account beneficiaries up to date.

To avoid probate

Every account that has a transfer- or pay-on-death (POD) option goes directly to its listed beneficiary after you die. You retain full rights to these accounts while you live, but they completely bypass probate on your death. This reduces the cost and longevity of the probate process for your heirs. In addition, setting up your beneficiary costs you nothing, and you will not encounter any account limits.

You cannot name alternatives

Unfortunately, you cannot name an alternate beneficiary on these accounts. Therefore, if something happens to the person you wanted to inherit your balance before you die, there is no backup listed with the insurance company, bank or other financial institution. This money is then combined with your remaining assets and needs to go through probate. However, if you update your beneficiaries regularly, you can name someone new if anything happens to your previous choice.

Your life changes

Change is inevitable. You may get married, have children, get divorced, etc. During or after every major life change, you should consider updating your estate plan, especially your POD beneficiaries. For example, you may want your children to inherit these accounts rather than your former spouse, and when you set up your accounts, you may not have had dependents and named one of your parents a beneficiary, which you may need to change when you marry.

Your will cannot change your POD beneficiaries, so update them regularly.