Introduction: Thinking About Probate Avoidance

• Is It Worth Your While to Avoid Probate?
• What Probate Avoidance Can’t Change
• Comparing Probate Avoidance Methods
• A Lick of Common Sense

1. Set Up Payable-on-Death Accounts

• The Paperwork
• Adding a POD Designation to a Joint Account
• Choosing Beneficiaries
• If a Beneficiary Dies Before You Do
• If You Change Your Mind
• Claiming the Money

2. Name a Beneficiary for Your Retirement Accounts

• Choosing a Beneficiary
• Required Minimum Distributions From Retirement Accounts

3. Name a Beneficiary for Your Stocks and Bonds

• Transfer-on-Death Registration
• Registration of Government Bonds and Notes

4. Name a Beneficiary for Your Vehicles

• Transfer-on-Death Registration
• Joint Ownership With the Right of Survivorship
• Special Transfer Procedures for Vehicles

5. Name a Beneficiary for Your Real Estate

• Can You Use a TOD Deed?
• How It Works: An Overview
• Possible Drawbacks of TOD Deeds
• How to Prepare, Sign, and Record the Deed
• Three Ways to Cancel the Deed—And One Way Not To
• How the New Owner Claims the Property

6. Hold Property in Joint Ownership

• Kinds of Joint Ownership That Avoid Probate
• Joint Tenancy
• Tenancy by the Entirety
• Community Property
• Alternatives to Joint Ownership

7. Create a Living Trust

• How a Living Trust Avoids Probate
• Other Advantages of a Living Trust
• Why You Still Need a Will
• Do You Really Need a Living Trust?
• Creating a Valid Living Trust
• What Property to Put In a Trust
• Taxes and Record Keeping
• Amending or Revoking a Living Trust Document

8. Take Advantage of Special Procedures for Small Estates

• Why Even Large Estates May Qualify
• Claiming Wages With an Affidavit
• Claiming Other Assets With Affidavits
• Simplified Court Procedures

9. Make Gifts

• The Federal Gift Tax
• Making Tax-Free Gifts
• Gifts That Could Land You in Tax Trouble
• What to Give
• Gifts to Children
• Thinking Before You Give

10. Putting It All Together

• Alice and Frank: A Simple Life
• Maria: Dealing With Widowhood
• Mike: Midlife Concerns
• Jim and Terry: An Unmarried Couple
• Esther and Mark: New Love, Old Money
• Linda and Tomas: Comfortable

Glossary

Appendix

• State Information

Index

Chapter 1:
Set Up Payable-on-Death Accounts

Payable-on-death bank accounts offer one of the easiest ways to keep money—even large sums of it—out of probate. All you need to do is properly notify your bank of whom you want to inherit the money in an account or a certificate of deposit. The bank and the beneficiary you name will do the rest, bypassing probate court entirely. It’s that simple.

While you are alive, the person you named to inherit the money in a payable-on-death (POD) account has no rights to it. If you need the money, or just change your mind about leaving it to the beneficiary you named, it’s still yours. You can spend it, name a different beneficiary, or close the account.

Payable-on-Death Account or “Totten Trust”?

You might find that your bank calls a payable-on-death account by a different name. For example, the bank might respond to your request for a payable-on-death account by handing you a form that authorizes the creation of something called a Totten trust. Payable-on-death bank accounts are also sometimes called tentative trusts, informal trusts, or revocable bank account trusts. Totten trusts are really just payable-on-death accounts. The name comes from an old New York court decision (Re Totten), which was the first case to rule (in 1904) that someone could open a bank account as “trustee” for another person who had no rights to the money until the depositor died. Other courts had balked at this, objecting that such an account was tantamount to a will, which had to fulfill detailed legal requirements to be valid. The Totten court called the account a “tentative” (revocable) trust. After this decision, courts in many other states adopted the idea of Totten trusts. Later, state legislatures enacted statutes authorizing payable-on-death accounts. These laws address many of the questions that had sprung up about Totten trusts. For example, some statutes lay out exactly how you can change a payable-on-death designation.

Payable-on-Death Accounts at a Glance
Pros	Cons
They’re easy to create. There’s no limit on how much money you can leave this way. Designating a beneficiary for a bank account costs nothing. It’s easy for the beneficiary to claim the money after the original owner dies.	You can’t name an alternate beneficiary

 

The Paperwork

Banks, savings and loans, and credit unions all offer payable-on-death accounts. They don’t charge any extra fees for keeping your money this way. You can add a payable-on-death designation to any kind of new or existing account: checking, savings, or certificate of deposit.

Setting up a payable-on-death bank account is simple. When you open the account and fill out the bank’s forms, just list the beneficiary on the signature card. If you’re opening an account online, you can probably designate a POD beneficiary when you set up your account. The bank may also ask you for additional information, such as the beneficiary’s address and birth date. (For example, the current address of each beneficiary is required by law in a few states.) The beneficiary of a payable-on-death account, who is commonly referred to as a “POD payee,” doesn’t have to sign anything.

Example: Magda wants to leave her two nieces some money. She opens a savings account at a local bank, deposits $10,000 in it, and names her two nieces as payable-on-death beneficiaries. After Magda’s death ten years later, they claim the money in the account—including the interest paid by the bank over the years—without going through probate.

If you choose an account that has restrictions on withdrawals—for example, a 24-month certificate of deposit—the early withdrawal penalty will probably be waived if you die before the period is up.

If you’ve considered changing a solely owned bank account to a joint account with the person you want to inherit the money after your death, you may be better off by simply naming the person as the POD beneficiary instead. There are several advantages.

If you added another person’s name to yours on the account, that person would immediately have the right to withdraw money from the account. And, a creditor could come after the added person’s share of the account. (See Chapter 6.) A POD account avoids those potential problems.

Example: Matthew, an elderly widower, goes down to his bank and makes his daughter, Lily, the payable-on-death beneficiary of his checking account. Lily (and her creditors) will have no access to the money during Matthew’s life, but after his death she’ll be able to get the funds in the account quickly and easily.

CAUTION
Don’t create a joint account just to avoid probate. If you want to leave money to someone at your death—but not give it away now—stick to a POD account. It will accomplish your goal simply and easily. Don’t set up a joint account with the understanding that the other person will withdraw money only after you die. This is a common mistake, and it often creates confusion and family fights.

Adding a POD Designation to a Joint Account

POD accounts can be very useful for couples who have joint bank accounts.

Accounts With a Right of Survivorship

Most joint accounts come with what’s called the “right of survivorship,” meaning that when one co-owner dies, the other will automatically be the sole owner of the account. So when the first owner dies, the funds in the account belong to the survivor—without probate. If you add a POD designation, it takes effect only when the second owner dies. Then, whatever is in the account goes to the POD beneficiary you named.

Example: Virginia and Percy keep a joint checking account with several thousand dollars in it. They hold this account as joint tenants with right of survivorship. They decide to name their sons, who are both adults, as POD beneficiaries. After both Virginia and Percy have died, the bank will release whatever is left in the account to the sons, in equal shares.

It’s important for both spouses (or other co-owners) to realize that designating a POD beneficiary for a joint account doesn’t lock in the surviving spouse after one spouse dies. The survivor is free to change the beneficiary or close the account, shutting out the beneficiary who was named back when both spouses were still alive.

Example: Howard and Marge name Megan, Howard’s daughter from a previous marriage, as the POD payee of their joint savings account. Howard dies first, and in the years that follow relations between Marge and Megan deteriorate. Marge decides to remove Megan as POD beneficiary and instead name her nephew, Max. When Marge dies, Megan doesn’t inherit any of the money in the account—even though she’s firmly convinced that her father intended her to.

Adding a POD beneficiary to a joint account not only avoids probate, but allows you to plan for the unlikely event that both persons die simultaneously.

Example: Deanna and Oliver have a joint savings account. They name their daughter, Jessica, as the payable-on-death beneficiary. When Deanna and Oliver are killed in an accident, Jessica inherits the money in the account without probate.

Accounts With No Right of Survivorship

Some kinds of joint accounts cannot be turned into payable-on-death accounts. Unless your joint account provides that when one owner dies, the other automatically becomes the sole owner, don’t try to name a POD payee for the account.

Two common situations where this advice applies are:

• Your state law requires you to request the right of survivorship in writing when you open the account, and you didn’t make the proper request. In that case, the account is not a joint tenancy account; it’s what’s known as a “tenancy in common” account, which means that you can leave your share to anyone you choose.
• You and your spouse live in a community property state and own a community property account together. Such accounts don’t carry the right of survivorship; each spouse has the right to leave his or her half interest to someone else.

CAUTION
Don’t use a POD designation for a joint account that doesn’t have the right of survivorship. In other words, don’t try to arrange things so that a POD payee inherits just your share of a co-owned bank account at your death. It’s far more reliable and less confusing to establish a separate account and name a POD payee for it.

Choosing Beneficiaries

There are few restrictions on whom you can name as a POD beneficiary. But there are issues to consider as you make your choices.

Extra FDIC Coverage for Beneficiaries

Payable-on-death accounts get extra coverage from the Federal Deposit Insurance Corporation. The general rule is that the FDIC insures each person’s accounts at a financial institution up to $250,000. But to calculate the amount of FDIC insurance coverage on an account with POD beneficiaries, you multiply the number of beneficiaries by $250,000. For example, if you have an account and name your son as the POD beneficiary, your insurance coverage is $250,000, just as it would be if you had no POD beneficiary. But if you name your son and your daughter as POD beneficiaries, the account is immediately insured up to 2 × $250,000, or $500,000. To check on FDIC coverage for your accounts, use the “Electronic Deposit Insurance Estimator” on the FDIC’s website at www.edie.fdic.gov.

 

Children

It’s fine to name a minor—that is, a child younger than 18 years old—as a POD payee. If the account is worth more than a few thousand dollars, however, you should think about what might happen if that beneficiary were still a child at your death. You will probably want to arrange for an adult to manage the money for the child.

If you don’t, and a minor child inherits money from a payable-on-death account, one of three things will happen:

• If state law allows it, the money, no matter how much, can simply be given to the beneficiary’s parents (or to the beneficiary, if he or she is married). The parents hold the money for the benefit of the child.
• If the amount is relatively small—generally, a few thousand dollars, depending on state law and bank custom—the bank will probably turn it over to the child or the child’s parents.
• If the amount is larger, the parents will probably have to go to court and ask to be appointed guardians of the money. (If the parents aren’t alive, a guardian will probably already have been appointed and supervised by the court.)

Fortunately, court involvement, which can be expensive, intrusive, and time-consuming, can be easily avoided. You can choose someone now, and give that person authority to manage the money, without court supervision, in case the child is still younger than 18 at your death. The logical choice, usually, is one of the child’s parents.

The easiest way to do this, in most states, is to name an adult to serve as “custodian” of the money. Custodians are authorized under a law called the Uniform Transfers to Minors Act (UTMA), which has been adopted by every state except South Carolina.

All you need to do is name the custodian as the POD payee of the account and make it clear that the custodian is to act on the child’s behalf. That gives the custodian the legal responsibility to manage and use the money for the benefit of the child. Then, when the child reaches adulthood, the custodian turns over what’s left to the beneficiary. Most, but not all, UTMA states set 21 as the age when the custodianship ends. (The ages are listed below.)

Example: Alma wants to make her grandson, Tyler, the POD payee of a bank account. But Tyler is just nine years old. So Alma decides to name Tyler’s mother, Gabrielle, as custodian of the money in the account. On the bank’s form, Alma puts, in the space for the POD payee, “Gabrielle Lopez, as custodian for Tyler Irving under the Florida Uniform Transfers to Minors Act.” If Tyler is not yet 21 when his grandmother dies, Gabrielle will be legally in charge of the money until Tyler’s 21st birthday.

If You Don’t Live in an UTMA State

Even if you live in South Carolina—the only state that has not adopted the UTMA—you may still be able to enjoy the law’s benefits. The law is written so that you can appoint a custodian if any of the following is true: The custodian lives in a state that has adopted the law. The minor lives in a state that has adopted the law. The bank account (the “custodial property,” in the terms of the statute) is located in a state that has adopted the law. Example 1: Christopher is a resident of South Carolina. His grandson, however, lives in California, which has adopted the UTMA. Christopher can appoint a custodian for his grandson under the California Uniform Transfers to Minors Act. As long as the boy is a resident of California when the transfer takes place, the transfer is valid under the UTMA. Example 2: Christopher keeps an account in a North Carolina bank. He can use the North Carolina UTMA to appoint a custodian for his granddaughter. On the bank forms, he can name “Emily Stanhope, as custodian for Michelle Stanhope under the North Carolina Uniform Transfers to Minors Act.”

Age at Which an UTMA Custodianship Ends
Alabama	21	Missouri	21
Alaska	18 to 25*	Montana	21
Arizona	21	Nebraska	21
Arkansas	18 to 21*	Nevada	18 to 25*
California	18 to 25*	New Hampshire	21
Colorado	21	New Jersey	18 to 21*
Connecticut	21	New Mexico	21
Delaware	21	New York	21
District of Columbia	18 or 21*	North Carolina	18 to 21*
Florida	21 or 25*	North Dakota	21
Georgia	21	Ohio	21 to 25
Hawaii	21	Oklahoma	18 to 21*
Idaho	21	Oregon	21 to 25*
Illinois	21	Pennsylvania	21 to 25*
Indiana	21	Rhode Island	21
Iowa	21	South Dakota	18
Kansas	21	Tennessee	21 to 25*
Kentucky	18	Texas	21
Louisiana	18	Utah	21
Maine	18 to 21*	Vermont	21
Maryland	21	Virginia	18, 21, or 25
Massachusetts	21	Washington	21 or 25
Michigan	18 to 21*	West Virginia	21
Minnesota	21	Wisconsin	21
Mississippi	21	Wyoming	21 to 30
* The person who sets up the custodianship can designate the age, within limits set by state law, at which the custodianship ends and the beneficiary receives the money outright.

 

Multiple Beneficiaries

You may want to name more than one person to inherit the money in a bank account—for example, your three children or two nephews. That’s no problem; just list all of the beneficiaries on the bank’s form. Each will inherit an equal share of the money in the account unless you specify otherwise.

CAUTION
Be careful when setting up unequal shares. In a few states—Florida, for example—you cannot change the equal-shares rule. If you’re concerned about this issue, check your state’s law or open a separate account for each beneficiary.

It’s important to realize that you can’t name an alternate payee— that is, someone to inherit the money if your first choice doesn’t outlive you. Whoever you name on the bank’s form will inherit the money at your death.

For example, some bank forms provide three spaces for beneficiaries’ names. If you list three people on the form, they will split the money in the account.

It’s not uncommon for people to assume that Beneficiary #1 will get all the money, and that if he isn’t alive at your death, then #2 will inherit it, and so on. But that’s not the way it works. The bank will not consider your list to be a ranking in order of preference.

If one of the beneficiaries dies before you do, all the money will go to the surviving beneficiaries. So if you leave an account to your three children, and one of them dies before you do, the other two will inherit the funds. Depending on your family situation, this result may be fine with you—or it may not. If it’s not what you want, you should name new POD payees after a beneficiary dies.

Example: Miranda names her sons, Brad and Eric, as POD beneficiaries of her bank account. Eric dies before Miranda does, leaving two children of his own. Unless Miranda changes her bank account papers to include Eric’s children as POD beneficiaries, they will not inherit their father’s share. Instead, all the money in the account will belong to Brad when Miranda dies.

Also give some thought to the kind of asset you’re leaving. Naming more than one POD beneficiary to inherit a bank account isn’t generally a problem, because the money can easily be divided.

If you are adding a POD designation to a brokerage account, however, things can be more complicated. If the account owns one large asset—for example, a bond—then it will have to be sold, and the proceeds divided among all the beneficiaries. That can be done, but the sale proceeds may need to be reported to just one Social Security number, which the beneficiaries may not want. These problems can be time-consuming and costly, outweighing any probate avoidance benefit.

Institutions or Businesses

It’s unlikely, but your state’s law may restrict your ability to name a business or an institution, such as a school, church, or another charity, as the beneficiary of a POD account. Delaware law, for example, requires the beneficiary to be “a natural person” or a nonprofit organization. (5 Del. Code Ann. § 924.) Oklahoma doesn’t allow for-profit entities, such as corporations or limited liability companies, to be POD beneficiaries; beneficiaries must be individuals, trusts, or tax-exempt nonprofits. (Okla. Stat. Ann. tit. 6, § 901.)

Your Spouse’s Rights

You might not have complete freedom to dispose of the funds in a bank account as you wish—even if it’s in your name. Your spouse or partner (if you’ve entered into a registered domestic partnership or civil union) may have rights, too. It depends on your state’s law.

Spouses’ Rights in Community Property States
If you live in a community property state, your spouse (or registered domestic partner) probably already owns half of whatever you have in a bank account, even if the account is in your name only. If you contributed money you earned while married, that money and the interest earned on it is “community property,” and your spouse is legally entitled to half.

Community Property States		Noncommunity Property States
Alaska*	Nevada	All other states
Arizona	New Mexico
California	Texas
Idaho	Washington
Louisiana	Wisconsin
* Only if spouses sign a community property agreement

 

There are a few exceptions to this rule: Your money is yours to do with as you please if you and your spouse have signed a valid agreement to keep all your property separate. And your spouse does not have any right to your separate property—money you deposited before you were married, or money that you alone inherited or received as a gift—unless that money has been mixed with community property in a bank account and is impossible to separate.

If the money in your account is community property, and you want to name someone other than your spouse as the POD beneficiary for the whole account, it’s a good idea to get your spouse’s written consent. Otherwise, your spouse could assert a claim to half of the money in the account at your death, leaving the beneficiary you named with only half.

CAUTION
You can’t shortchange creditors or family. If you don’t leave enough other assets to pay your debts and taxes or to support your spouse and minor children temporarily, a POD bank account may be subject to the claims of creditors or your family after your death. If there is any probate proceeding, your executor can demand that a POD beneficiary turn over some or all of the funds so that creditors can be paid. If you specifically pledged the account as collateral for a debt, the creditor is entitled to (and doubtless will) claim repayment directly from the funds in the account. The POD payee gets whatever, if anything, is left.

Spouses’ Rights in Noncommunity Property States
If you leave money in a POD bank account to someone other than your spouse, make sure your spouse doesn’t object to your overall estate plan.

In almost all noncommunity property states (all states except the ones listed above), a surviving spouse has the right to claim a certain percentage of the deceased spouse’s property. This is called the spouse’s “elective share” or “statutory share.” In many states, it amounts to about a third of what the spouse owned. It’s a rare occurrence, however, for a spouse to go to court over this, because most spouses inherit more than their statutory share.

The funds in a POD account may be subject to a spouse’s claim— or they may not, depending on state law. Some states consider such accounts outside the surviving spouse’s reach.

Contractual Wills

It’s not common, but some couples make legally binding agreements to leave property to each other. They sign a con-tract that requires them to sign wills leaving all their assets (or part of them) to one another. Courts have ruled that these con-tracts take precedence over payable-on-death designations on bank accounts. In other words, the POD designation gets wiped out by the contract. Example: Scott and Terry sign a contract in which each promises to make a will leaving all their assets to the other. Later, Scott adds a payable-on-death designation to his savings account, naming his brother as the beneficiary. If Scott dies first, Terry has a legal right to the funds in the account.

 

If a Beneficiary Dies Before You Do

If someone you have named as a POD beneficiary dies before you do, you should fill out the necessary paperwork at the bank to put a new beneficiary in place. If you named more than one payee, and one or more of them dies before you do, the funds in the account will go to the survivor(s) at your death. (See “Choosing Beneficiaries,” above.)

If none of the POD payees you named is alive at your death, the money in the account will become part of your estate. The bank will release the funds to your executor who will be responsible for seeing that they are distributed under the terms of your will or state law.

The money will probably have to go through probate, unless your estate is small enough to qualify for special, simpler procedures. (Chapter 8 discusses these probate shortcuts.)

TIP:
If you want to name alternate beneficiaries, don’t rely on a POD account. Banks generally don’t allow you to name an alternate POD payee—that is, someone who would inherit the money if none of your primary beneficiaries outlived you.

Your will, if you make one (and you should, for reasons like this) functions as a backup in this case, as explained below. But that doesn’t avoid probate. If you want to name a backup beneficiary and be sure of avoiding probate, you can use a living trust. (See Chapter 7.)

Depending on state law, however, the bank may be able to release the money directly to your legal heirs—the close relatives who are entitled to inherit from you if you don’t leave a will. In that case, the money won’t have to go through probate.

If the money goes to your executor, it will be distributed under the terms of your will, even though you most likely didn’t even mention this account in your will. That’s because most wills contain what is called a “residuary clause,” which names a beneficiary to inherit any assets that are not specifically mentioned in the will. The person you named to inherit this “residuary” property would receive this money.

Example: Andres names his brother as the POD beneficiary of his savings account. But his brother dies, and Andres, who is ill, isn’t able to change the paperwork at the bank to name a new payee. Andres does, however, have a will that contains a residuary clause, naming his daughter Madeline as residuary beneficiary. When Andres dies, and the will is probated, the money in the account goes to her, along with everything else that Andres didn’t specifically leave to another beneficiary.

If You Change Your Mind

Families change; relationships change. At some point you may decide that you don’t want to leave money to a POD payee you’ve named, or a beneficiary may die before you do. You’re free to change the POD arrangement, but you must meticulously follow the procedures for making changes. The law books, sadly, are full of cases brought by relatives fighting over the bank accounts of their deceased loved ones who didn’t pay enough attention to these simple rules.

How to Change a POD Designation

There are two reliable ways to make a change to a POD account:

• Withdraw the money in the account.
• Go to the bank—or to the bank’s website, if you named your POD beneficiary online—and change the paperwork. Fill out, sign, and deliver to the bank a new account registration card (or online form) that names a different beneficiary or removes the POD designation altogether.

To ensure that your wishes are followed after your death, dot the i’s and cross the t’s when it comes to following the bank’s procedures. A change in beneficiary isn’t effective unless you fulfill the bank’s requirements, whatever they are. Almost all banks require something in writing—a phone call isn’t good enough. And to be effective, in most places your written instructions must be received by the bank before your death.

That doesn’t sound difficult, but it’s not all that unusual to find problems. In one case, after a woman’s death a new signature card, in a stamped envelope, was found on her desk. Relatives sued over the money. The court ruled that the change was not effective because the new signature card was ambiguous and because the bank had not received it before her death. (Codispoti v. Mid-America Federal Savings and Loan Ass’n, No. 85AP-451, Ohio App. (1986).)

Contradictory Will Provisions

Trying to change a POD designation by leaving the account to someone else in your will is almost certain to cause problems after your death. At best, it will spawn confusion; at worst, disagreements or even a lawsuit.

About half the states say, flat out, that a POD designation cannot be overridden or changed in a will. In these states, a will provision that purports to name a new beneficiary for a POD account will simply have no effect.

Example: Kimberly fills out her bank’s form and names her niece, Patricia, as the POD beneficiary of her bank account. After they have a falling-out, Kimberly writes her will, and in it leaves the funds in the account to her friend Jamillah. At Kimberly’s death, Patricia is still legally entitled to collect the money.

Some other states do allow you to revoke a payable-on-death designation in your will if you specifically identify the account and the beneficiary. An attempt to wipe out several accounts with a general statement won’t work. For example, a South Dakota woman wrote in her will “I hereby intentionally revoke any joint tenancies or trust arrangements commonly called ‘Totten trusts’ [another name for POD accounts] by this will.” After her death, a court ruled that even this language wasn’t specific enough; state law requires every POD account to be individually changed or revoked. (In re Estate of Sneed, 521 N.W.2d 675 (S. Dak. 1994).)

The moral: Never rely on your will to change a payable-on-death account. Instead, deal directly with the bank, which, after all, will be in charge of the money after your death.

Property Settlement Agreements at Divorce

A property settlement agreement, even though it’s approved by a court when a couple divorces, might not revoke a payable-on-death designation.

For example, when a New York couple divorced, the property settlement agreement gave the husband “any and all bank accounts, held jointly or otherwise.” Some of those accounts named the wife as payable-on-death beneficiary; when the husband died, the former wife inherited the money. The court ruled that because the settlement agreement had not named the accounts specifically, it had not met New York’s statutory requirements for the revocation of a Totten trust account. (Eredics v. Chase Manhattan Bank, N.A., 760 N.Y.S.2d 737 (Ct. App. 2003).)

Similarly, when an Arizona couple divorced, their property settlement agreement gave the husband some bank certificates of deposit, for which he had named his wife as the payable-on-death payee. But the husband never went to the bank and removed the wife as the POD payee. When he died, a court ruled that the ex-wife was entitled to the money, because the settlement agreement had no effect on the contract between her former husband and the bank. (Jordan v. Burgbacher, 883 P.2d 458 (Ariz. Ct. App. 1994).)

Claiming the Money

After your death, all a POD beneficiary needs to do to claim the money is show the bank a certified copy of the death certificate and proof of his or her identity. If the account was a joint account to begin with, the bank will need to see the death certificates of all the original owners. The bank records will show that the beneficiary is entitled to whatever money is in the account.

State laws authorize banks to release the money in payable-on-death accounts when they’re shown this proof of the account holder’s death; they don’t need probate court approval. Legally, the money automatically belongs to the beneficiaries when the original account owner dies. It’s not part of the probate estate and isn’t under the executor’s control. Beneficiaries may, however, encounter some delays when they go to claim the money:

• Tax clearances. Like other bank accounts, a payable-on-death account may be temporarily frozen at your death, if your state levies estate taxes. The bank will release the money to your beneficiaries when the state is satisfied that your estate has ample funds to pay the taxes.
• Waiting periods. There may be a short waiting period before the money can be claimed. Vermont, for example, doesn’t allow a bank to release funds to POD beneficiaries until 90 days after the death of the account owner. (8 Vt. Stat. Ann § 14205.)

When you set up a POD account, ask the bank what the POD payee will need to do to claim the money after your death. Then make sure the payee knows what to expect.

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