Legal Definitions - payable-on-death designation

A payable-on-death (POD) designation is a legal arrangement that allows the owner of an asset to name a beneficiary who will automatically receive that asset upon the owner's death, without the need for probate.

Essentially, a POD designation acts as a "will substitute" for specific assets. While the owner is alive, they retain complete control over the asset, including the ability to use, spend, or change the beneficiary. The designated beneficiary has no legal rights or access to the asset until the owner passes away. This method is often used in estate planning because it provides a straightforward way to transfer certain assets directly to a chosen individual or entity upon death, bypassing the potentially lengthy and public probate process.

• Example 1: A Savings Account

  Scenario: Sarah opens a new savings account and wants her nephew, Michael, to receive the funds if she passes away. She instructs her bank to add a "Payable on Death to Michael" designation to the account.

  Illustration: During Sarah's lifetime, she has full control over the savings account. She can deposit more money, withdraw funds, or even close the account entirely without Michael's consent or knowledge. Michael has no access to the money and cannot make withdrawals. If Sarah dies, the bank will release the funds directly to Michael upon presentation of her death certificate, without the account needing to go through probate.

• Example 2: A Certificate of Deposit (CD)

  Scenario: David invests in a Certificate of Deposit (CD) and designates his daughter, Emily, as the POD beneficiary.

  Illustration: David maintains sole ownership and control of the CD throughout its term. He receives any interest payments and can decide to renew the CD or cash it out when it matures. Emily has no claim to the CD or its earnings while David is alive. If David passes away before the CD matures or is cashed out, Emily will become the rightful owner of the CD's proceeds, bypassing the probate court.

• Example 3: U.S. Savings Bonds

  Scenario: Maria purchases several U.S. Savings Bonds and registers them with a "POD to her granddaughter, Sofia" designation.

  Illustration: Maria is the sole owner of the savings bonds while she is alive. She can redeem them at any time, and Sofia has no rights to the bonds or their value. If Maria dies, Sofia can claim the bonds directly from the U.S. Treasury Department by providing proof of Maria's death, ensuring a direct and efficient transfer of the asset outside of the probate process.