Banks, savings and loans, and credit unions all offer payable-on-death accounts. They don't charge any extra fees for keeping your money this way. You can add a payable-on-death designation to any kind of new or existing account: checking, savings, or certificate of deposit.
Setting up a payable-on-death bank account is simple, but you must make your wishes known writing, on the bank's forms. When you open the account and fill out the bank's forms, just list the beneficiary on the signature card as the POD payee. The bank may also ask you for some other information, such as the beneficiary's address or birth date. For example, the current address of each beneficiary is required by law in a few states. The beneficiary of a payable-on-death account doesn't have to sign anything. You don't even have to tell the beneficiary about it, for that matter--though it's better to let the person know, so he or she will know to claim the money later.
EXAMPLE: Magda wants to leave her two nieces some money. She opens a savings account at a local bank, deposits $10,000 in it, and names her two nieces as payable-on-death beneficiaries. After Magda's death ten years later, they claim the money in the account—including the interest that's been added to the account—without going through probate.
You can also add a POD designation to an account you already own. Again, it's all done on the account documents provided by the bank. Just fill out a new form, naming the person of your choice as the POD beneficiary.
If you choose an account that has restrictions on withdrawals—for example, a 24-month certificate of deposit—the early withdrawal penalty will probably be waived if you die before the period is up.
If you've considered changing a solely owned bank account to a joint account with the person you want to inherit the money after your death, you may be better off by simply naming the person as the POD beneficiary instead. Joint ownership can have disadvantages. If you added another person's name to yours on the account, for example, he or she would immediately have the right to withdraw money from the account. And if the new joint owner got accumulated a lot of debt, a creditor could come after her share of the account. A POD account avoids these potential problems.
EXAMPLE: Matthew, an elderly widower, goes down to his bank and makes his daughter, Doris, the payable-on-death beneficiary of his checking account. Doris (and her creditors) will have no access to the money during Matthew's life, but after his death she'll be able to get the funds in the account quickly and easily.
Don't create a joint account just to avoid probate. If you want to leave money to someone at your death—but not give it away now—stick to a POD account. It will accomplish your goal simply and easily. Don't set up a joint account with the understanding that the other person will withdraw money only after you die. This is a common mistake, and it often creates confusion and family fights.