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What should you know if you inherit a payable on death account?

Even people who don't have a will or estate plan can designate a beneficiary on their bank accounts. This is known in the banking world as a payable on death (POD) account. It prevents the account from going into probate and allows the beneficiary to have access to the funds simply by presenting the death certificate of the account holder.

If you're the beneficiary of a POD account, it's essential to understand what the tax and other financial ramifications are to you before you do anything with the money. It's wise to consult an estate planning attorney to help prevent any negative unintended consequences. These may include:

- Paying an inheritance and/or federal or state estate taxes. - Determining how much you have to report on your income taxes vs. how much per the deceased person's estate.

Generally, the beneficiary of a POD reports the value of the account on the date of death.

Another issue that beneficiaries of POD accounts may need to deal with include any of the deceased person's outstanding debt or bills and paying them out of the POD account they have inherited. This often depends on whether the beneficiary was a co-signer or guarantor on any of the outstanding debt.

The best advice for anyone who inherits a POD account is to consult with the deceased person's estate planning attorney if he or she had one. If not, it's best to seek experienced legal guidance in California or whatever state the deceased person lived in. It may also be wise to seek guidance from a tax professional to help minimize any penalties and maximize the funds you inherited, which is likely the intent of the person who left the account to you.

Source: The Balance, "What Happens to a Payable on Death Account When the Owner Dies?," Julie Garber, accessed June 15, 2017

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