Payable on Death Vs Beneficiary

Making the decision about what happens to your finances after you die can be a difficult one. Do you go with a payable on death arrangement, or do you choose beneficiary designation?

This personal finance guide will compare both options and look into the advantages and disadvantages of each. By the end of this article, you should have a good understanding of which option is right for you!

What is a Payable on Death?

A Payable on Death, or POD, is a type of financial account in which the account holder designates a beneficiary who will receive the money in the account upon the account holder's death.

What is a Beneficiary?

A beneficiary is someone who you designate to receive your assets upon your death. This can be done through a will, trust, or other estate planning tool.

What is The Difference Between a Payable on Death and a Beneficiary?

The main difference between a Payable on Death and a Beneficiary is that a Payable on Death account allows you to name someone who will receive the money in your account after you die, while a Beneficiary designation only applies to retirement accounts.

What Are The Different Types of Payable on Death?

There are two types of payable on death: bank accounts and life insurance.

Bank accounts

With a bank account, the money in the account is only accessible to the beneficiary after the account holder’s death. The money is not subject to probate and can be paid out immediately.

Life insurance

With life insurance, the death benefit is paid to the beneficiary after the policyholder’s death. The money from a life insurance policy is not subject to probate and can be paid out immediately.

What Are The Different Types of Beneficiary?

There are three different types of beneficiary:

• Primary
• Contingent
• Tertiary

Primary

The primary beneficiary is the first person named in the policy who will receive the death benefit.

Contingent

The contingent beneficiary is the second person named in the policy and will only receive the death benefit if the primary beneficiary dies before the policyholder.

Tertiary

The tertiary beneficiary is the third person named in the policy and will only receive the death benefit if both the primary and contingent beneficiaries die before the policyholder.

What Are The Advantages of a Payable on Death?

One of the main advantages of a Payable on Death account is that it avoids probate. Probate can be a long and expensive process, so avoiding it can be a big plus.

Another advantage of a Payable on Death account is that you can change the beneficiary at any time. So if your circumstances change, you can easily adjust who will receive the money.

Finally, with a Payable on Death account, the money is available to the beneficiary immediately upon your death. There is no waiting period like there can be with other types of accounts.

What Are The Advantages of a Beneficiary?

There are a few advantages to having a beneficiary. The first is that your assets can be distributed immediately upon your death, without going through probate. Probate can be a lengthy and expensive process, so avoiding it can be a big advantage.

Another advantage of having a beneficiary is that you can change your beneficiaries at any time, without having to go through the legal process of changing your will. This can be a big advantage if your circumstances change and you want to change who gets your assets when you die.

Finally, having a beneficiary can give you peace of mind knowing that your assets will go to the people you want them to go to, without any hassle.

What Are The Disadvantages of Payable on Death?

There are a few disadvantages to consider when deciding if a Payable on Death account is right for you.

Firstly, your named beneficiary could predecease you, which would mean the money would go back into your estate and be subject to probate.

Additionally, if you name more than one beneficiary and they don't get along, they could end up fighting over the money.

Another potential downside is that your named beneficiary could use the money in the account irresponsibly, and if they have financial problems, the money could be seized by creditors.

Finally, if you name a minor as your beneficiary, the court will appoint a guardian to manage the account until they reach adulthood.

What Are The Disadvantages of Beneficiary?

There are a few disadvantages to beneficiary. The first is that it can be difficult to change your beneficiaries if you need to. You will have to contact the company or institution holding your account and fill out paperwork requesting the change.

This can be time consuming and may require some research on your part. Additionally, if you forget to update your beneficiaries, your account may go to someone you no longer want it to.

Another disadvantage of beneficiary is that the money in the account is not immediately available to your beneficiaries upon your death. The company or institution holding the account will need to probate your will and distribute the assets according to your wishes. This can take months, or even years, to complete. Additionally, if you have a large account, your beneficiaries may be responsible for paying taxes on the money they receive.

Finally, beneficiary is not always the best option if you want to keep your financial affairs private. When you name a beneficiary, that person's name becomes public record. This means that anyone can request information about the account, including the balance and transactions. If you want to keep your financial affairs private, you may want to consider another option.

So, Which One Should You Use?

There's no easy answer to this question. It depends on your individual circumstances and what makes the most sense for you. If you're not sure, it's always a good idea to speak with a financial advisor to get their professional opinion.

At the end of the day, both Payable on Death and Beneficiary designations can be helpful tools in estate planning. It's important to understand the difference between the two and to make a decision that's right for you and your family.

What Are Some Alternatives to Using a Payable on Death or a Beneficiary?

There are a few alternatives to using a Payable on Death or Beneficiary.

You could use a Will, which is a legal document that outlines how you would like your assets to be distributed after you die. However, Wills can be expensive and time-consuming to create, and they must be updated regularly as your life circumstances change.

Another option is to set up a revocable living trust. This is a legal arrangement in which you transfer ownership of your assets to a trustee, who then manages the assets for the benefit of your beneficiaries.

The advantage of using a trust is that it can avoid probate - the court process that happens when you die and your Will is executed. Probate can be expensive and time-consuming, so avoiding it can be a significant benefit.

The downside of using a trust is that it can be complex to set up and manage, and you will need to consult with an attorney to ensure that everything is done correctly.

Finally, you could simply name your beneficiaries on your accounts. This is the simplest option, but it does have some drawbacks.

What Are Some Tips For Using a Payable on Death?

When using a payable on death account, there are a few things to keep in mind.

First and foremost, you need to make sure that the account is funded. This means that you will need to have enough money in the account to cover any expenses that may come up.

Additionally, you will need to designate a primary beneficiary and a backup beneficiary. The primary beneficiary will receive the money from the account first, and the backup beneficiary will only receive the money if the primary beneficiary is unable to do so.

Finally, you will need to make sure that you keep your beneficiaries up to date. This means that if you get married or have children, you will need to update your beneficiaries accordingly.

What Are Some Tips For Using a Beneficiary?

If you're looking to use a beneficiary, there are a few things to keep in mind. First, make sure that the beneficiary is someone who you trust implicitly. This person will be responsible for handling your finances after you're gone, so it's important to choose someone who is both responsible and level-headed.

Second, be clear about what you want the beneficiary to do with your money. Do you want them to use it for specific purposes, like paying off debts or funding a child's education? Or do you simply want them to have the freedom to use it as they see fit? Make sure that your wishes are clearly outlined in your will or estate planning documents.

Finally, keep in mind that beneficiaries can change over time. If your circumstances or relationship with the beneficiary changes, make sure to update your documents accordingly.