In Georgia, one of the ways you can make sure you are protecting your assets for yourself and those you love is to make sure you have a beneficiary designation or a payable on death designation on every single account, policy, place you can.
Beneficiary designations avoid probate in Georgia.
Payable on death designations avoid probate in Georgia.
What are these? Let’s talk about that.
A beneficiary designation and a payable on death (POD) designation are both legal mechanisms used to direct the distribution of assets upon a person’s death, but they apply to different types of assets and have distinct features. Here’s a breakdown of the differences between them:
- Beneficiary Designation
- Definition: A beneficiary designation is typically used for financial accounts, life insurance policies, retirement accounts, and other similar assets. It allows the account holder to name one or more beneficiaries who will receive the asset upon the holder’s death, bypassing the probate process.
- Common Uses:
- Life Insurance Policies: The policyholder names a beneficiary (or multiple beneficiaries) who will receive the insurance payout after the policyholder’s death.
- Retirement Accounts (such as IRAs, 401(k)s): Account holders name beneficiaries who will inherit the funds in the retirement account upon their death.
- Bank Accounts (in some cases): Certain bank accounts, like transfer-on-death (TOD) accounts, allow account holders to designate beneficiaries.
- Key Features:
- The beneficiary has no ownership interest in the account or asset while the account holder is alive.
- Upon the account holder’s death, the asset passes directly to the designated beneficiary, avoiding probate.
- The designation can be updated or changed at any time by the account holder (as long as they are mentally competent).
- Example: Alice has a life insurance policy with a beneficiary designation naming Bob as the beneficiary. Upon Alice’s death, Bob will receive the death benefit directly from the insurance company. If Alice, in her Will, said she wanted Carrie to get the life insurance policy, Carrie will NOT get the policy, Bob will still get the policy.
- Payable on Death (POD) Designation
- Definition: A payable on death (POD) designation is a specific type of beneficiary designation that applies only to certain types of bank accounts or financial assets (typically checking, savings, or CDs). It allows the account holder to designate one or more individuals who will receive the account balance upon the account holder’s death, bypassing probate.
- Common Uses:
- Bank Accounts: POD is commonly used for checking accounts, savings accounts, or certificates of deposit (CDs). The account holder names a beneficiary who will receive the funds in the account after the account holder’s death.
- Certificates of Deposit (CDs): Some CDs offer a POD option, where the account holder can designate a beneficiary to inherit the CD upon their death.
- Key Features:
- Like a beneficiary designation, the person named in a POD designation does not have any rights to the account while the account holder is alive.
- Upon the account holder’s death, the funds in the account are paid directly to the POD beneficiary. The beneficiary does not need to go through probate to receive the funds.
- The POD designation is revocable, meaning the account holder can change the beneficiary at any time before death.
- Example: Alice has a savings account with a POD designation naming Bob. When Alice passes away, Bob will directly receive the funds in the savings account, bypassing the probate process. Again, if Alice wants this account to go to Carrie, not Bob, and says so in her Will. Bob is getting the account because he is named as the person to get the account on the POD designation.
Key Differences Between Beneficiary Designation and POD Designation
| Feature | Beneficiary Designation | Payable on Death (POD) Designation |
| Applies To | Life insurance, retirement accounts, annuities, etc. | Bank accounts (checking, savings, CDs) |
| Rights During Life | Beneficiary has no rights during the account holder’s life | Beneficiary has no rights during the account holder’s life |
| Transfer Upon Death | Beneficiary receives the asset directly, avoiding probate | POD beneficiary receives the account balance directly, avoiding probate |
| Revocability | Account holder can change or update designation at any time | Account holder can change or update POD designation at any time |
| Specificity | Can apply to a variety of asset types (life insurance, retirement accounts, etc.) | Primarily applies to bank accounts and CDs |
- A beneficiary designation is a broad term used to assign someone to inherit an asset (like a life insurance policy or retirement account) upon the account holder’s death, often bypassing probate.
- A payable on death (POD) designation specifically refers to naming a beneficiary for bank accounts and certain other financial assets. Upon the account holder’s death, the funds are paid directly to the beneficiary without going through probate.
Both mechanisms are used to simplify the transfer of assets after death and avoid the delays and costs associated with probate.
At Atlanta Wills and Trusts Law Group in Alpharetta, Georgia, we recommend everyone, at least one every few years, go through every single account and policy and confirm what their beneficiary designation and payable on death designations are and ask themselves the following: is this what I want for this money?