We recently discussed deed language in our post, Is Your Title to Real Property Consistent with Your Estate Planning Goals?, and noted that the title of a deed may allow the property to bypass probate. The same is true of Payable on Death (POD) or Transfer on Death (TOD) designations.
With POD and TOD designations on bank accounts, investment accounts, retirement accounts and insurance proceeds the account owner designates one or more beneficiaries. Upon death the account proceeds transfer to the beneficiary without going through the probate process. Typically, all that is required to receive the money is for the beneficiary to show the institution an original death certificate.
While the account owner is still alive, the named beneficiary has no control over the account and the owner has the right to change the beneficiary designation at any time.
The property in these types of accounts never go into the estate. They bypass the estate and go directly to the beneficiary even if a Last Will and Testament says otherwise. The beneficiary designation will supersede the language in the Will. Repeat. The beneficiary language, i.e. POD or TOD designations trump the language in the Will stating who gets assets from the decedent.
This can lead to all types of problems if the decedent did not know this and plan for this. Comprehensive estate planning always takes non-probate assets into consideration when looking at overall goals and how to best achieve them and most importantly to avoid an uneven distribution plan. Another way to avoid this issue is to name the account beneficiary as "The Estate of CLIENT," so the designation is parallel with the intentions listed in the will.
If any forms left the POD/TOD designation blank, the assets will be brought into the estate and distributed according to the will's distribution plan. For a comprehensive look at your overall estate plan, contact Stouffer Legal at 443-470-3599 in the Greater Baltimore area.