Payable on Death Accounts Are Not Part of an Estate — What That Means for Beneficiaries and Heirs
If you’re dealing with the death of a family member and beginning to sort through their finances, one of the first things you might encounter is something called a Payable on Death (POD) account. These accounts can appear on bank statements, retirement funds, or CDs, and they come with a built-in beneficiary designation. The idea is simple: when the account holder dies, the money goes directly to the named person, no court involvement required.
What many people don’t realize, however, is that Payable on Death accounts are not part of the estate. This distinction has legal and practical consequences—especially when there’s a trust in place or other heirs who were expecting to share in the decedent’s assets. In our experience at Trust Law Partners, LLP, POD accounts are a frequent source of confusion, resentment, and even litigation.
Understanding how these accounts work—and what rights you do or don’t have when they’re involved—is key to avoiding surprises and protecting your inheritance. Our San Mateo, California, estate planning lawyers can help you navigate these complexities and safeguard your rightful share.
What Is a Payable on Death Account?
A Payable on Death (POD) account is a type of bank account that allows the owner to name a beneficiary who will automatically receive the funds upon the owner’s death. These accounts are also known as Totten trusts, although they are not actually trusts in the legal sense. Common types of POD accounts include checking and savings accounts, certificates of deposit (CDs), and some money market accounts.
The major benefit of a POD account is that it avoids probate. The funds pass directly to the beneficiary, bypassing the court system entirely. All the named beneficiary needs to do is provide a copy of the death certificate and valid identification to the bank. The bank then releases the money—without involving an executor or trustee, and without notifying other family members.
On the surface, this seems like a convenient and efficient way to transfer funds. And in some cases, it is. But this simplicity can also create problems.
Why POD Accounts Are Not Considered Part of the Estate
Under California law, assets titled with a named beneficiary pass outside of probate. This includes:
- Payable on Death (POD) accounts - Transfer on Death (TOD) securities or real estate - Life insurance policies with named beneficiaries - Retirement accounts such as IRAs or 401(k)s with designated beneficiaries
These assets do not become part of the probate estate because they are considered non-testamentary transfers. That means they pass by contract, not by will or intestate succession.
If your loved one had a will or even a comprehensive trust-based estate plan, the assets in a POD account are not controlled by those documents. The named beneficiary takes the account, regardless of what the trust or will says.
This legal separation creates a host of complications, especially in families where expectations were not clearly communicated or where one child was favored over others. In some cases, it leads to complete exclusion of certain heirs, even if the decedent had intended for them to inherit equally.
Common Disputes Involving POD Accounts
At Trust Law Partners, we frequently represent beneficiaries and heirs in disputes where a POD account seems to conflict with a will or trust. Here are a few of the common scenarios we encounter:
1. A Last-Minute Beneficiary Change
A parent near the end of life changes a bank account to make one child the sole POD beneficiary. The rest of the children are left out, despite a will or trust that divides the estate equally. This often leads to claims of undue influence—particularly if the favored child had access to financial records, accompanied the parent to the bank, or acted as a caregiver.
2. Disputes Over Intent
Sometimes, a decedent sets up a POD account years earlier and forgets to change it after life events such as marriage, divorce, or the birth of grandchildren. The account still names a former spouse or a sibling instead of the decedent’s adult children. The result feels unfair, and family members often question whether the decedent truly intended that person to receive the money.
3. Misunderstanding the Effect of a POD Designation
Some people believe that POD accounts are merely convenience arrangements—meant to allow someone to access funds in an emergency, but not necessarily to receive the money outright. Unfortunately, the law treats the POD designation as binding, regardless of intent, unless there is very strong evidence to the contrary.
Can POD Accounts Be Challenged?
Although POD designations are generally upheld, there are limited circumstances under which they can be challenged in court. The most common grounds for challenging a POD account include:
- Undue influence
- Lack of capacity
- Fraud or forgery
- Contradictory estate planning documents
These claims are often difficult to prove and require careful investigation, including medical records, witness testimony, and banking documentation. At Trust Law Partners, we’ve handled many such cases and know how to build a strong case when something doesn’t add up.
How POD Accounts Can Undermine a Trust
One of the most frustrating things for trust beneficiaries is discovering that a large portion of the decedent’s assets were never transferred into the trust since they were sitting in POD accounts. This problem arises even in well-drafted estate plans.
In some cases, a person creates a revocable living trust but fails to retitle their bank accounts into the trust or doesn’t remove outdated POD designations. As a result, those accounts do not flow through the trust and are distributed according to the bank’s beneficiary form, not the trust’s instructions.
This situation frequently leads to family conflict. One child receives an entire account directly, while the rest must divide whatever assets remain in the trust. Unless the trust was clearly intended to override all POD designations, there may be little recourse.
POD Accounts and the Rights of Creditors
Another consequence of POD accounts being outside the estate is that they are generally not subject to creditor claims during probate. This means the person who receives a POD account is not required to use those funds to pay estate debts.
However, in certain cases, if the estate is insolvent, and if the transfer was made in bad faith or with intent to avoid debts, creditors may seek to recover those assets. These claims are complex and often require litigation.
How to Avoid Problems with POD Accounts
If you are planning your own estate or helping a loved one with theirs, be mindful of the following steps:
- Review all beneficiary designations regularly
- Coordinate POD accounts with your overall estate plan
- Avoid relying solely on POD accounts to distribute assets
- Consult a knowledgeable estate planning attorney
If you’re a beneficiary or family member who believes something went wrong, it’s important to get legal advice early. You may have options to contest a POD designation or to recover funds if a fiduciary acted improperly.
How Trust Law Partners Can Help
At Trust Law Partners, LLP, we specialize in trust and estate litigation. That includes disputes involving Payable on Death accounts, beneficiary designations, and the improper handling of estate assets. We represent beneficiaries who have been wrongfully excluded, heirs who were misled about their inheritance, and family members who suspect undue influence or fraud.
We understand the emotional and financial stakes involved in these cases. Our firm handles claims on a contingency basis, meaning there are no legal fees unless we recover money for you. If you believe a POD account was misused, manipulated, or wrongfully excluded from an estate, we can help.
We work with forensic accountants, handwriting experts, and financial institutions to uncover the facts and fight for your rightful share.
For a confidential consultation, contact Trust Law Partners, LLP at 833-853-9305 today.
