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Why payable on death accounts should be used with caution

As someone who is planning their estate and future legacy in New York, it is likely that you are familiar with payable on death accounts (POD), otherwise known as transfer on death accounts (TOD). They are generally known as a great way to go about avoiding probate on the assets contained within these accounts.

Avoiding probate tends to be considered as advantageous by most since it means that assets are transferred quickly and directly to allocated loved ones without needing to go through the lengthy and expensive probate process after the event of your death.

Attempting to avoid the probate process

Bypassing probate can be done in two main ways in New York: by creating a joint account, or by creating a POD account. Joint accounts can be created with your spouse, for example, or in conjunction with your child. In the event of one person's death, the surviving account owner will automatically own the assets within that account. However, there can be problems that arise when the joint owner is a minor, or when a joint owner decides to add new owners to the account.

Words of caution for payable on death accounts

POD accounts can be a great way to ensure the transfer of assets after your death. They can be created by designating a beneficiary on your bank account. They are an easy and efficient way to prevent probate, however they should be chosen with some caution. The following are some reasons why they can be less than optimal:

  • When one of the designated beneficiaries dies before he or she inherits the assets held within the account, it can cause complications when it comes to deciding how much is owed, and to whom.
  • If there is only one beneficiary, and that beneficiary passes away before he or she inherits the assets, it can also mean that the account will automatically go through probate unless another beneficiary is designated.
  • When multiple beneficiaries are designated, they must have an equal share of the assets. Therefore, there is no flexibility in POD accounts if you would like to give one of the beneficiaries a larger share.

Deciding upon the best way to avoid going through probate can be a complex and very personal task. It is important, therefore, that you conduct thorough research into POD accounts before deciding to move forward with the commitment.

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