Difference Between a Will and a Death Bill (and When to Use Them)
When you die, it can take over a year to brute force your property. For this reason, you may need to convert some of your bank accounts to Pay-in-Death (POD) accounts, which will give your heirs quick access to these funds. PODs don’t have to replace the comprehensive estate planning you get by will, but there are scenarios where PODs might make sense.
What is a death invoice?
Most types of cash accounts – savings, checking, CDs – allow you to specify a recipient in the event of your death, although you must first request this. There are also so-called “transfer at death” accounts , which is the same idea but applies to assets such as property or stock (in this post we will just focus on accounts payable of death).
The advantage of these accounts is that you will inherit money (relatively) quickly without going through the lengthy process of enforcing your will, known as a will, which can take over a year . This can be handy, especially if your recipients are in urgent need of cash, perhaps to cover your funeral expenses.
All you have to do is notify the bank of your intentions to identify the beneficiary and the bank will provide you with a form to fill out (sometimes called the “Totten trust” form) free of charge. Once approved, the named beneficiary is not entitled to any of your money while you are still alive (even if you are incapacitated). In the event of your death, the beneficiary will still need an ID and a copy of your death certificate to switch account – a process that can take anywhere from a few days to a couple of weeks.
Why a death payment does not replace a will
PODs can be a good way to quickly transfer money to the recipient, but they have some drawbacks that make them less flexible than traditional estate planning:
- PODs do not have special probate asset protection, which means you will be more vulnerable to lawsuits and creditors demanding your funds.
- While you can claim more than one beneficiary for a POD, there are often restrictions on how to split this. Individual backup instructions based on different scenarios are also not possible (for example, when the beneficiary dies before you).
- There is no control over how money is spent. Real estate planning, on the other hand, gives you more options and contingencies for allocating funds. This flexibility is useful when the beneficiaries are children.
When does payment of death bills make sense?
As this Forbes column suggests , a POD makes sense if your family is in urgent need of money. A POD can work well when you have an uncomplicated property to roll out, such as when you already have only one beneficiary who will inherit most of your property. (This is why some people create special PODs for certified escrow or checking accounts, but leave the rest of their estate in a traditional will.)
Whichever you choose, consider talking to a financial advisor first. There are many inheritance issues that POD may not address, especially if you have many beneficiaries and a wide range of investments.