Is a Payable-on-Death Account a Good Alternative to a Preneed Funeral Plan?

A payable-on-death (POD) account (also known as a Totten Trust) is an excellent alternative to a preneed funeral plan. Essentially a savings account with a named beneficiary, it is easy to set up and has the added benefit of allowing you to maintain total control of whatever money you set aside until the time of your death. You don’t even need to open a new account if you already have money in savings that you want to use — just ask your bank for the appropriate paperwork, name the person you want to be your beneficiary, and you aree done. 

A Totten Trust is a fully revocable trust, so you can add money to it or take money out just as you would any bank account. Your beneficiary has no rights to the money while you are still alive. They cannot withdraw any funds from the account, nor does the balance count towards their assets (an important consideration if they get sued for any reason or run up debt they cannot pay). Further, you can close the account or change your beneficiary at any time. 

Another benefit of a Totten Trust is that the money in the account is exempt from probate, so your beneficiary will have access to the money shortly after your death. There may be a brief waiting period while the bank collects the necessary documentation (usually just a certified copy of the death certificate and identification for the beneficiary). But the money should be available by the time your funeral is arranged.

Yet another alternative to a preneed funeral plan is to open a joint savings account with a friend or relative. This is not quite as secure as a Totten Trust because the account and all the money in it will be owned by both of you, and the other person can withdraw funds without your knowledge or consent. If you choose this option, make sure the person with whom you open the account is someone you trust.

Sources

“What Is a Totten Trust?” NOLO. https://www.nolo.com/legal-encyclopedia/what-is-totten-trrust.html