Payable on death, or POD, designations are commonly used in estate planning. There are many benefits to its use, but there are some situations in which it should be avoided. To help you determine whether or not a POD designation would help you, here is what you need to know. 

What Is a Payable on Death Designation?

Payable on death designations are usually available for bank accounts, retirement plans, and some other assets. When you open an account with a financial institution, you have the option of designating a person to be your beneficiary when you pass away. After your death, the person is paid directly from the account. 

Why Should You Use POD Designations?

One of the reasons to use a POD designation is that it helps to avoid probate. The funds are paid directly to your heir and are transferred without having to go to probate court. This means that your heir does not have to wait to receive his or her funds. 

Another reason for using a POD designation is that you have the right to change your beneficiary at any time. Depending on your financial institution, the process could be as simple as submitting a form. By contrast, if you have a trust, the process to change the recipients of the trust could be more complicated. 

Why Should You Avoid POD Designations?

If you have minor children, listing them as the beneficiary of your POD accounts could cause significant delays in the distribution of the funds. Financial institutions do not release funds to minors. As a result, your executor or the children's guardian will have to go to court to get a court order to get the money released. The cost of going to court could take a bite out of what your child stands to receive. 

If you have adult children and list one as the beneficiary, this could potentially cause problems with the other children. Ideally, the child you choose to list will handle the account responsibly and distribute the funds to his or her siblings in a fair manner. Unfortunately, this does not always happen. If the beneficiary fails to distribute the funds as you expected, the other children could be short-changed. 

POD designations seem straightforward on the surface, but they can be more complicated depending on your situation. Work with an estate planning attorney to determine the best way to handle your accounts. To find out more, speak with a business like Cadwallader Law Offices.