Advantages and Disadvantages of a POD Account

A POD account is owned by one person (owner) who has named another person (beneficiary) to receive the remaining money in an account upon the owner’s passing.  In this circumstance, the beneficiary only has control once the owner is deceased. 

READ MORE: What happens if someone owns stock at the time of their death?

Who can be a beneficiary?  Financial institutions always have internal policies, but Ohio law allows beneficiaries to be individuals, trusts, and even organizations (including charities).  Ohio law also allows for multiple beneficiaries on one account. 

There are some big advantages for POD accounts – avoidance of probate for that account, easy to set up, easy to change, and beneficiaries can’t access until you’re gone (usually an advantage), and they are cheap! 

These great advantages often leave some of the critically important disadvantages overlooked.  So – what are some of those disadvantages? 

READ MORE: The Rights of a Surviving Spouse

Creditor Access: If your beneficiary has some kind of creditor issue (perhaps a judgment lien, bankruptcy, a divorce decree, etc.), that creditor may have immediate access to the account upon your passing. 

Unintended Beneficiaries: POD designations are typically quite rigid.  It’s not uncommon that an owner will set up a beneficiary (and successor beneficiary) on an account – years go by – the owner gets married/divorced/has kids/falls out of touch with the listed beneficiary/etc., then has no idea who is even listed as the beneficiary is (or even knows if that person is still alive!). 

Loss of Eligibility for Beneficiaries with Government Benefits: Even if the beneficiary isn’t on government benefits of some kind at the time you establish the POD beneficiary designation, that person might be in the future.  Receiving an immediate distribution upon the owner’s passing can cause some trouble for the beneficiary’s eligibility for government benefits down the road. 

Possible need for a Guardian for Minor Beneficiary: If your beneficiary is a minor, a guardian may need to be appointed by the probate court to manage assets inherited by the minor (often defeating the purpose of a POD designation).  Once the minor turns 18, they generally have unrestricted access to the money. 

READ MORE: The Basics of Guardianship of a Minor

Legal Incapacity of Owner: If the owner becomes legally incapacitated and the owner’s agent under the power of attorney (if one has been executed by the owner) takes control of your finances, problems can arise.  Under Ohio law, your agent does not have the authority to change a beneficiary designation unless you have expressly granted that power in the power of attorney document.