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What is a P.O.A. versus a P.O.D.? Are these the same things?

While these can both be part of your Estate Plan, they are not the same thing. P.O.A. stands for Power of Attorney and is a designation of rights which allows someone other than you the right to access your financial account or health information while you are alive. Usually these are used when you are incapacitated and cannot pay your own bills or make your own health care decisions. The important thing to remember with a Power of Attorney is that the power to write checks ceases immediately upon your death. This is where the P.O.D. takes over.

            P.O.D. stands for Pay-on-Death and is a designation used to transfer an asset, usually a financial account, to a beneficiary at the time of your death. These are commonly used on your personal checking/savings accounts, your investment accounts and your life insurance policies. To transfer the asset, your loved ones simply need to present a death certificate to the institution which houses the account.

            Most people opt to have both a P.O.A. and a P.O.D. on their bank accounts and that’s why people usually confuse these two. You want the Power of Attorney listed on your financial account so that if you cannot pay your bills, your loved one can pay them for you. You want the Pay-on-Death listed on your account because it will quickly transfer the remaining funds to your loved ones (while avoiding Probate) after you pass away.

            A common mistake that people make is listing a loved one as a Joint Owner on their bank accounts. This is incorrect and risky. For example, Dad lists only one of his three adult children as a Joint Owner on his account because he wants that child to help him pay his bills. Dad then passes away. Instead of the remaining money in the account being split between all three children, the child listed as a joint owner is now the effective owner of the whole account. The other two children are cut out of that asset. 

            It is risky to have an adult child listed as a Joint Owner because if the adult child goes through a divorce, gets garnished or has to file for bankruptcy, the creditor/court could seize half of the money in the account. Joint owners are legally half owners of what is in the account, even though it is Dad’s money. 

            Instead of listing one child as a Joint Owner, it is a better idea to use a P.O.A. and a P.O.D. A Power of Attorney would allow one adult child to write checks for Dad’s account. Additionally, a Pay-on-Death could list all three adult children’s names so that the money would avoid probate and go in equal shares to all three. As always, check with an estate planning attorney to see if these tools would fit in your specific Estate Plan.