Payable on Death Designation Accounts vs. Revocable Trusts: Which Is Better in Florida?

An Introduction to Determining Whether a Payable on Death Designation or a Revocable Living Trust is Better for Estate Planning in Florida

Many folks believe that filling out the Payable on Death (POD) form provided by their financial institution is sufficient for their estate plan; it’s not!

POD designations are permissible under Florida Statute § 655.82 and are quite helpful in certain situations. However, it can also be considered one of the most overused tools for those who choose the DIY route. The problem with a POD-only plan is that when the narrow set of circumstances under which it collapses, so do the probate avoidance efforts that the account holder wishes to attain.

The following provides a cursory look at how POD accounts function in Florida, actually, and why a properly drafted (and funded!) Revocable Living Trust (RLT) is also needed to support probate avoidance objectives.

How do POD Accounts Work in Florida?

Under Florida Statute § 655.82, financial institutions are permitted to transfer funds to named beneficiaries upon an account holder’s death when the POD designation is made by the account holder. The purpose of this is to allow for the efficient and speedy transfer of financial assets without the need for a probate court to be involved.

POD designations may be used on checking accounts, savings accounts, certificates of deposit (CDs), or similar deposit accounts. These designations are similar to Transfer on Death (TOD) designations afforded in brokerage accounts, mutual funds, and securities.

In Florida, POD designations have certain noteworthy attributes:

• Designated beneficiaries do not have rights during the account holder’s lifetime. Account holders maintain all rights and ownership in financial accounts with a POD designation, allowing them to spend the funds, close the account, or change the designation without needing the authorization of the beneficiary.
• Direct Transfer at death. The main benefit of the POD designation is that when the account holder passes, the beneficiary needs only to provide the financial institution with the death certificate and identification to have the funds released.
• Designation supersedes a Will. If there is ever conflicting information in an account holder’s Last Will and Testament, the POD designation governs. For example, if a decedent’s Will states that their savings account is to be left to their children equally, but only one is named as the POD beneficiary, then that one child will inherit the entire savings account.
• Exposure to creditors. Creditors may be able to attach to an account holder’s interest in an account without concern for the POD beneficiary’s interest since it doesn’t vest until the account holder has passed away. After the account holder’s death, the beneficiary’s own creditors can reach the funds once the title transfers.

Gaps in POD protection

For the most part, if the account holder predeceases the named adult POD beneficiary, it works well. However, there are several weak points to this method. The following presents two examples in which a POD beneficiary designation does not work.

#1: When the Beneficiary Predeceases the Owner

This is a common scenario that many never account for when solely using POD beneficiary designations for estate planning. Take, for example, an account holder names their adult child as their beneficiary on an account, but several years later, that child passes away unexpectedly. What happens to that account if the account holder passes away but fails to update the POD beneficiary (which happens more often than you’d think, considering this scenario often involves a grieving parent who has lost a child)?

According to Florida Statute § 655.82(3)(b), if no beneficiary survives the account holder, the funds belong to the estate of the last surviving party. Simply put, the POD designation is treated as if it never existed, and the asset (in this case, the savings account) becomes a probate asset. This means that the asset is now subject to the full Florida probate process, including formal administration if the value of the account is over $75,000. Aside from the time and cost of probate, the asset may be subject to creditor claims and become part of the public record of the probate case. This is exactly the situation the account holder was trying to avoid when they named the POD beneficiary in the first place.

It’s worth noting that, unlike life insurance policies, many (if not most) banks do not permit contingent beneficiaries to be listed – or, at best, they only permit one level of contingent beneficiaries. Furthermore, the ability to leave an asset “per stirpes” (meaning to a beneficiary’s heirs if they predecease the account holder) is nonexistent with most financial institutions. Whereas this language is often found in a Revocable Living Trust. And finally, Florida’s anti-lapse statute § 732.603, which protects certain devises in a will when a beneficiary predeceases the testator, does not generally apply to non-probate transfers such as POD accounts.

#2: When the Beneficiary Is a Minor

Another common scenario is when a POD beneficiary is a minor. This is common amongst parents or grandparents leaving assets to children or grandchildren. Oftentimes, the account holder will simply write the child’s name as the POD beneficiary on the bank’s form without any guidance regarding the legal pitfalls of having done so.

Florida law prohibits a minor from legally taking ownership of significant assets directly. According to Florida Statute § 744.301(2), a natural guardian may receive and manage funds on behalf of a minor child if the total value left to the minor is $15,000 or less. However, if the inheritance is greater than $15,000, then Florida law requires the appointment of a court-supervised guardian of the property.

While this may sound like a simple process, guardianship in Florida is a very in-depth process that requires court oversight. Without proper planning, a relatively small POD account meant to help the grandkids can lead to years of court oversight, costly legal fees, and rigid restrictions until the minor beneficiary is an adult.

How a Revocable Living Trust Solves Both These Problems in Florida

A properly drafted and funded RLT solves both of these problems illustrated above, as well as provides several other benefits. In Florida, RLTs provide a great deal of flexibility and convenience. In comparison to POD designations, they provide the following:

• Multi-level contingencies are permitted. Unlike most POD designations, an RLT in Florida permits a grantor to include primary beneficiaries, as well as contingent and successor contingent beneficiaries. They also allow “per stirpes” language that allows assets to pass to grandchildren without the need to redraft the document.
• Provides for trustees for minors. Having a minor as a beneficiary in an RLT does not cause the devise to fail or default into guardianship. When a grantor leaves property to a minor child in a trust, the asset is left under the supervision of a trustee who holds and manages the asset in accordance with the trust document.
• Afford protection for all types of assets. While POD and TOD designations apply only to deposit accounts and certain securities, respectively, trusts accommodate all types of assets, including, but not limited to, real estate, business interests, vehicles, or tangible personal property.
• Incapacity planning options. POD designations fail to account for the incapacity of the account holder. Conversely, an RLT may account for circumstances in which the grantor becomes incapacitated, thereby allowing the family members to access the asset without court intervention.
• Privacy concerns. While a failed POD designation will ultimately lead to a probate case that becomes public record, an RLT is a private document. This is an important feature for those who appreciate discretion related to their beneficiaries and the value of their estate.

To explore the structure and benefits of revocable trusts in further detail, visit our various resources, including our service page related to Revocable Living Trusts, our article exploring various Considerations When Creating a Living Trust in Florida, and our guide on How to Fund a Revocable Living Trust in Florida (because an unfunded trust has the same probate problem as a missing POD designation!).

Comparison: POD Account vs. Revocable Living Trust in Florida

When is a POD Account the Right Tool?

It must be noted that POD accounts are not inherently bad, but they cannot be considered a complete estate plan. Essentially, they are a part of a comprehensive plan that serves to support a more thorough plan that includes an RLT or other documents.

POD designations may be excellent for specific purposes, such as on smaller financial accounts that give loved ones immediate access to funds on an emergency basis, particularly in the time prior to a trust being administered.

To determine if a POD designation is sufficient, the following questions should be considered:

1. Is a contingent beneficiary listed on every POD or TOD account (assuming the bank permits one)?
2. Who is the contingent beneficiary if the primary beneficiary predeceases the account owner? For example, would it be the children of the primary beneficiary or defaulted to the estate?
3. Are any of the beneficiaries under 18 years of age?

If any answer to these questions leads to uncertainty as to whether an estate will have to go through probate or a guardianship case may be needed, then the plan requires more than simply a POD designation form.

Frequently Asked Questions

Talk to a Florida Estate Planning Attorney

An estate plan is not something that is done just to get it off a “to-do” list. It serves an important purpose of creating security for loved ones in times of death and disability. It’s imperative that all estate planning efforts serve this purpose.

At ASR Law Firm, we help Florida families build estate plans that actually hold up when most needed. Whether our clients are at the beginning of their estate planning journey, revisiting existing plans, or unsure if their DIY efforts and POD designations align with their objectives, we remain available to help evaluate options and build a strategic plan suited to their needs. 

To learn more about how we can assist you with building your estate plan that properly achieves your objectives, contact us to schedule a complimentary consultation.