Should I Use a Florida Pay-On-Death Account?

Solid estate plans make efficiency a chief objective.  Cost-efficient planning maximizes the assets available for beneficiaries by reducing administrative and filing fees that might otherwise decrease the value of an estate.  Additionally, well-planned transfers allow for a family

and loved ones to benefit from assets without lengthy delays.  In Florida, part of this efficiency can be achieved by utilizing automatic transfers upon death, known as pay-on-death (POD) designations.[1]

What is a Pay-On-Death Account?

A Pay-On Death account is an estate planning tool that allows an individual to pass money to family or loved ones without the necessity of probate when he or she dies. 

Under a POD account, title and ownership of the account will automatically transfer to a named beneficiary upon the death of the owner, without the need for probate.  In Florida, a POD designation is commonly used for checking accounts, savings accounts, certificates of deposit, and share accounts; however, the designation is not limited solely to these types of accounts.

Is a Pay-On-Death Account Helpful?

Typically, court-supervised administration of an estate, known as probate, is lengthy and expensive. Formalities can include:

  • Should I Use a Florida Pay-On-Death Account?admission of a last will and testament in Florida to probate (if a will was written);
  • appointment of a personal representative;[2]
  • determination of beneficiaries;[3]
  • notices to unknown beneficiaries;
  • notices to creditors;
  • resolution of estate claims; and
  • distribution of assets to heirs at the end of the process.

The circuit court supervises each of these steps to ensure proper compliance with the Florida Probate Statutes.[4]  Simple estates typically take six months to settle, while complex estates or contentious estate administrations can last for years.[5]  Consequently, commensurate administrative expenses and attorneys’ fees will be accruing throughout the probate process, lessening the overall value of the estate.

Developing a sound estate plan that provides for the automatic transfer of assets without the need for probate can be an efficient way to avoid lengthy probate delays and to maximize the value provided to a family and loved ones.  Under the Florida Statutes, pay-on-death accounts are one of the most popular methods for accomplishing non-probate transfers.

Will a Pay-On-Death Account be Subject to Estate Tax?

Inheriting a POD account does not exempt the account from estate tax; however, federal estate taxes typically only apply when the decedent has substantial assets (in the millions of dollars).   

Although POD accounts can bypass probate, your probate estate and taxable estate are separate considerations for tax purposes.  Everything of value owned at the time of death is considered your taxable estate, regardless of whether it requires probate or is automatically transferred to a beneficiary.

While some POD accounts are subject to estate tax, this is only a concern for very wealthy estates.  According to the IRS, most simple estates (including cash, publicly traded securities, small amounts of easily valued assets with no special deductions or elections, or jointly held property) do not require the filing of an estate tax return.[6]  But, in 2020, a filing is required for estates with combined gross assets and prior taxable gifts exceeding $11,580,000.[7]

If a decedent’s assets are subject to estate taxation, the estate is responsible for the payment, not the beneficiary.  However, an executor can utilize part of a beneficiary’s inheritance or the deceased’s other assets, if necessary.  For instance, if your loved one will inherit $14,000,000 from your estate, the executor of the estate can reduce this amount to cover the estate taxes on the $2,420,000 above the threshold.

Can a Pay-On-Death Account be Reached by a Creditor?

You cannot shortchange creditors by utilizing a POD account—avoiding probate does not equate to waiving your legal obligations.

A POD account does not provide asset protection during the lifetime of the owner.  Money in these accounts belongs to the owner while they are alive, and the owner retains the right to freely withdraw money from the account.  Just as the owner can access the money, a creditor of the owner can also collect a judgment from the funds.

While the owner is living, a POD account does not belong to and cannot be accessed by the designated beneficiary.  Therefore, while the money in a POD account can be reached by the living owner’s creditors, creditors of the designated beneficiary may not garnish the account during this time.

After the death of the owner, if the beneficiary files for bankruptcy or has an outstanding debt, they run the risk of losing their POD inheritance.  After the account transfer is complete, the POD account is then owned by the beneficiary and legal protections are not available.  Thus, a creditor can garnish the account. If this is a concern, a trust may be a better a mechanism to protect a potential beneficiary from creditors.

At the Flammia Elder Law Firm, our experienced Florida estate planning attorneys can evaluate your assets and income to determine what is at risk of collection from a judgment creditor.  Then, we can help develop a plan to protect exposed assets from collection.

What Are Best Practices for Using a Pay-On-Death Account?

It is important to make sure that your POD account complies with your overall estate plan objectives and that your POD account beneficiaries are kept up to date.

Many clients want to ensure that they provide for their entire family, not just a single beneficiary.  Situations commonly arise in which a one child or beneficiary is listed on the POD account for convenience purposes (such as to pay estate expenses), but the intention was that the remaining funds be distributed equally to all children or beneficiaries.

Unfortunately, designated beneficiaries often refuse to share POD funds, cutting off the other children or beneficiaries from their inheritance.   This can lead to misunderstandings and contentious situations resulting in litigation.  As a result, a person should name all beneficiaries on the POD account, and not assume that one child will share the account equally with their siblings.

Another issue arises when the designated beneficiary predeceases the owner of the POD account.  Rather than being automatically transferred, the asset becomes part of the estate.  Consequently, it is subject to probate.

Best Practices for POD Accounts

To avoid negating the intent of an estate plan or having the POD account be subject to probate, the following best practices can be followed:

  • Regularly review POD accounts.
  • Structure POD accounts to compliment estate plans.
  • Designate all beneficiaries that the POD account is intended to benefit.
  • Upon the death of a designated beneficiary, update the POD beneficiaries.

Can Pay-on-Death Accounts be Subjected to Estate Litigation by Other Heirs or Beneficiaries?

As is the case with a will or trust, POD accounts are subject to challenge by other heirs or beneficiaries on grounds such as undue influence, fraud, duress, and overreaching.[8] 

Florida case law provides that POD beneficiary designations can be invalidated based on undue influence.[9]  Undue Influence is defined as over-persuasion, duress, force, coercion, or artful or fraudulent contrivances to such a degree that there is a destruction of free agency and willpower of the decedent.  Essentially, this means that a decedent does not willingly and intentionally designate the POD beneficiary; rather his or her actions are the product of the wrongful influence of another person.

Consulting with a knowledgeable attorney can help safeguard against future undue influence, fraud, duress, or overreaching claims.  As experienced Florida estate planning and probate attorneys, we can counsel you on how to avoid POD pitfalls that can lead to contentious litigation between your heirs and help develop an estate plan that adequately provides for your family and loved ones.

Contact the Flammia Elder Law Firm to Learn More About How You Can Take Advantage of a Pay-On-Death Account and Avoid Probate!


[1] Fla. Stat. Ann. § 655.82.

[2] Fla. Stat. Ann. § 733.104.

[3] Fla. Stat. Ann. § 733.105.

[4] Fla. Stat. Ann. § 733.

[5] Consumer Pamphlet: Probate in Florida, The Florida Bar (Updated Aug. 2018), https://www.floridabar.org/public/consumer/pamphlet026/.

[6] Estate Tax, Internal Revenue Service (Updated Jan. 2020), https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax.

[7] The federal estate tax changes nearly every year, so after 2020 it’s important to learn the current exemption for those who potentially may have estates subject to taxation.

[8] Cripe v. Atl. First Nat’l Bank of Daytona Beach, 422 So. 2d. 820, 823 (Fla. 1982).

[9] In Keul v. Hodges Blvd. Presbyterian Church,[9] the court invalidated a pay-on-death (“POD”) designation of a decedent’s credit union account when a former caregiver used her confidential relationship to obtain the designation.  Keul stated that PODs are will substitutes that “are subject to challenge on grounds such as undue influence, fraud, duress, and overreaching.”[9] Keul explained that:

“a POD account, although not in the strictest sense a testamentary device and not subject to the formalities required of wills, functions as a will substitute and partakes of many of the same equitable considerations that apply to testamentary transfers. Florida law and policy against abuse of fiduciary relationships apply to contracts, inter vivos transfers, and testamentary transfers, and are properly applied to determine whether a POD designation has been obtained through undue influence.”[9]

 

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