When it comes to inheritance planning, many people consider various accounts and their disadvantages, such as the disadvantages of a payable-on-death account.
In this article, we’ll be exploring the disadvantages of a POD account in debt. And, we’ll also discuss alternative inheritance options, like establishing relationships with one of the most exclusive private banks in the world.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Payable on Death Account 101
- Disadvantages of Payable on Death Account
- Frequently Asked Questions
- Ready to Explore Your Options?
Payable on Death Account 101
A payable-on-death bank account is an account that has a named beneficiary. In other words, in the event that the account holder dies, the balance of the account will be distributed to the named beneficiary, avoiding probate.
Using a payable-on-death account is seen as an easy, fast, and cost-effective option to ensure assets are distributed to the desired beneficiary. Additionally, as mentioned, it ensures that the balance of the account is not subjected to probate.
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Disadvantages of Payable on Death Account
When considering the wide range of estate planning and inheritance options available, there are a number of disadvantages to a payable-on-death account. That said, there are a few key disadvantages that everyone should consider before setting up such an account.
First, unlike other estate planning options, a payable-on-death account does not allow for an alternate beneficiary to be named. In other words, if the named beneficiary dies before the account holder and the account is not updated, the balance will be transferred to the estate or will instead.
Additionally, if a beneficiary has been named to an account, the balance of this account will not be available to contribute to the debts, taxes, and other liabilities of an estate. This can dramatically reduce the inheritance that is made available to other beneficiaries.
With the above in mind, many individuals decide to seek alternative inheritance planning methods. This includes support from private banking and wealth management institutions. Of course, the specific options that are best for your situation will depend on the value of your estate, the jurisdictions involved, and much more.
Frequently Asked Questions
Below are two of the most common questions that we receive from people looking at the disadvantages of payable on a death account. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
Should I Make My Back Accounts Payable on Death?
Whether you should make your bank accounts payable on death depends on a range of variables. Not surprisingly, this includes your existing inheritance plans. In other words, how you want your assets to be distributed. Additional consideration should be given to any documents laying out your objectives like a will. Also, it’s important to consider whether your accounts are held personally or through a trust or foundation.
Are Proceeds From a POD Account Taxable to the Beneficiary?
Whether proceeds from a POD account are taxable to the beneficiary depends on several variables. This includes where taxes are being levied (e.g. the states involved). Additionally, taxation depends on whether the beneficiary is a spouse or a surviving child (or another relative). With this in mind, it’s important to consider how the tax will be applied before naming a beneficiary.
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