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Tips for preventing issues with beneficiary designation accounts

Many bank accounts have a “transfer on death” (TOD) option, which allows a beneficiary to take ownership of the account without going through probate. These can be great estate planning tools, allowing for assets to be quickly transitioned without administrative hassle or cost. However, for all the incredibly positive aspects of these accounts, there are some issues that may arise if they are not used or maintained properly. Here are some of the ways California estate planners can prevent issues with TOD accounts: 

  • Review the named beneficiary regularly, particularly during a life change: Marriage and divorce are important times to review any estate planning documents, including accounts with beneficiary designations. If an ex-spouse is named on the account, he or she will receive the funds upon their former partner’s death – even if that was not what the person would have wanted at the time they died. This can lead to confusion and litigation, so keeping these accounts up-to-date is a must. 
  • Make sure the designation matches other estate planning documents: Imagine having three accounts for each child, invested differently, with the transfer on death for each pointing to one child. Over time, these accounts could have vastly different amounts. If a will suggests assets should be divided evenly, then there could be a discrepancy between intentions and the TOD accounts, leading to significant administrative issues to untangle. 
  • Ensure there are some non-TOD accounts available to estate administration costs: If all assets are in accounts that transfer upon death, it can leave people with no easy way to pay bills like funeral costs, executor payments and so on. A living trust may be a more flexible option for those looking for a way to work around probate issues without leaving no money for these essentials 

Of course, TOD accounts can be a very helpful part of an estate plan, especially in cases where a surviving spouse or dependent needs to quickly receive funds needed to live. However, these accounts should be well-considered and only be one part of a fully considered estate plan. Those facing issues with TOD accounts, either in the planning or administration process, should speak with a California estate attorney.  

 

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