A “pay on death” account is basically an estate planning tool that allows the primary account holder to transfer funds or assets easily and quickly upon your death to a loved one. The best way to understand why you might wish to convert an account to a “pay on death” account is to illustrate what happens if the account is not titled in this way.

The “pay on death” option is typically available for bank, retirement and investment accounts as well as securities registrations. Some states also allow vehicles to be registered as “pay on death”. Imagine that you have a bank account with a substantial amount of money in the account. Your intention is for your child to have the money in the account upon your death. Titling the account as a joint account is an option; however, if you do not want your child to have access to the account while you are alive, then the joint ownership option will not work.

When you die, the funds in the account will become part of your probate estate. In most states, this means the funds will be frozen until a court is satisfied that all legal requirements have been met to transfer the funds to your beneficiaries or heirs. This can take months, or even years, to accomplish. By simply converting the account to a “pay on death” account, the funds held in the account are legally transferred immediately upon your death to your child, thereby avoiding the need for them to be held up in the probate estate process.