Transfer on Death question

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SGM
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Transfer on Death question

Post by SGM » Wed Apr 05, 2017 10:10 am

The POA is considering a transfer on death for an relative's account. The problem is that TOD negates the will in my understanding. The intention is to set up the same beneficiaries and proportions as the will. However, one of the heirs is an obstructionist who may challenge the will, and there is a statement in the will that if anyone challenges the will they will forfeit their inheritance just to prevent that heir from being obstructionist. I am concerned that if the heirs all receive their shares through TOD this person will then be free to start a law suit against the estate and no longer be constrained by the will. Any thoughts about that?

It looks like a revocable trust won't fly because the elderly relative once had one and revoked it without explanation. I am trying to avoid probate and headaches for the POA who will be the executor.

NotWhoYouThink
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Re: Transfer on Death question

Post by NotWhoYouThink » Wed Apr 05, 2017 10:18 am

IANAL, but your assessment looks pretty good. An obstructionist could argue that the POA was not in fact acting in the best interests of the account owner. In fact, if the situation you describe takes place, then all the heirs could make that argument against the POA - removing the disincentive to challenge the estate puts all the heirs at risk, and negates the stated intention of the owner. Saving on probate costs, if that's what the POA is thinking of, could get pretty darn expensive.

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dm200
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Re: Transfer on Death question

Post by dm200 » Wed Apr 05, 2017 10:47 am

SGM wrote:The POA is considering a transfer on death for an relative's account. The problem is that TOD negates the will in my understanding. The intention is to set up the same beneficiaries and proportions as the will. However, one of the heirs is an obstructionist who may challenge the will, and there is a statement in the will that if anyone challenges the will they will forfeit their inheritance just to prevent that heir from being obstructionist. I am concerned that if the heirs all receive their shares through TOD this person will then be free to start a law suit against the estate and no longer be constrained by the will. Any thoughts about that?
It looks like a revocable trust won't fly because the elderly relative once had one and revoked it without explanation. I am trying to avoid probate and headaches for the POA who will be the executor.


Can the elderly relative act for him/herself without relying on the PoA?

Instead of having multiple TOD or POD beneficiaries on account(s), might it be "cleaner" and less subject to challenge to have one completely separate account with just this person as the TOD/POD beneficiary?

dcdowden
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Re: Transfer on Death question

Post by dcdowden » Wed Apr 05, 2017 11:26 am

I have served as executor for a couple of estates, and from my experience I would recommend using the TOD wherever possible. The heirs get the assets very quickly (a few weeks) independent of the Probate process which can drag out for years. Many states now have TOD provisions for real property (ie., homes, cars, etc) which avoids probate or the need to put the asset into a trust.

If all the major assets are covered by TOD, then I'm not sure what the 'Obstructionist' would have left to object to in the will. Many states also have an abbreviated probate process for 'small estates'.

If the relative who is the principal is not capable of executing these changes in beneficiaries themself, then the person with the POA may or may not be able to do that on their behalf. Check out this link, and definitely check with an attorney.

http://info.legalzoom.com/can-power-att ... 21711.html

SGM
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Re: Transfer on Death question

Post by SGM » Wed Apr 05, 2017 12:59 pm

Thanks for your replies.

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CAsage
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Re: Transfer on Death question

Post by CAsage » Wed Apr 05, 2017 6:37 pm

I would agree that having the assets Transfer on Death is way simpler, and there might not be enough left to bother suing the estate over! What would one be obstructing at that point? I would also say... that the Transfer on Death and Beneficiary statements transcend or override the will, they don't negate it. There is just less stuff subject to the will.
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bertilak
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Re: Transfer on Death question

Post by bertilak » Wed Apr 05, 2017 6:54 pm

CAsage wrote:I would agree that having the assets Transfer on Death is way simpler, and there might not be enough left to bother suing the estate over! What would one be obstructing at that point? I would also say... that the Transfer on Death and Beneficiary statements transcend or override the will, they don't negate it. There is just less stuff subject to the will.

I have an older relative who moved from one state to another and I checked with a lawyer in the new state about the need to rewrite the will to simplify probate in the new state. She looked at the situation and "Yes, a new state-specific will would be better and she could do that BUT we shouldn't bother. Just be sure any significant accounts have beneficiaries assigned." These can be TOD, Joint Owner, or (for an IRA) a Beneficiary. So that's what we did. No POA involved. Actual account holder took the action.
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Kevin M
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Re: Transfer on Death question

Post by Kevin M » Wed Apr 05, 2017 7:00 pm

dcdowden wrote:If all the major assets are covered by TOD, then I'm not sure what the 'Obstructionist' would have left to object to in the will.

That's what I was thinking.

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BolderBoy
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Re: Transfer on Death question

Post by BolderBoy » Wed Apr 05, 2017 8:40 pm

SGM wrote:I am concerned that if the heirs all receive their shares through TOD this person will then be free to start a law suit against the estate and no longer be constrained by the will. Any thoughts about that?

IANAL.

If the probate estate is empty (everything was transferred by TOD or POD) then what compensation would the obstructionist be expecting to receive?

My mother's probate estate was empty. The Court didn't even appoint executors since there was nothing to probate (everything passed by TOD and POD). I suppose that someone could sue her empty estate but what would they get?

Isn't this akin to your situation? (I'm in Virginia)
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Kevin M
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Re: Transfer on Death question

Post by Kevin M » Wed Apr 05, 2017 8:52 pm

BolderBoy wrote:If the probate estate is empty (everything was transferred by TOD or POD) then what compensation would the obstructionist be expecting to receive?

So now at least four of us have posted basically this same thought!

My mother's probate estate was empty. The Court didn't even appoint executors since there was nothing to probate (everything passed by TOD and POD).

I have settled two estates in which all assets were either in a revocable trust, POD, in retirement accounts with named beneficiaries, or whatever was left was handled with a small estate affidavit. I never even saw the inside of a courthouse.

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bsteiner
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Re: Transfer on Death question

Post by bsteiner » Wed Apr 05, 2017 9:21 pm

This may be penny wise and pound foolish.

If there are any debts, expenses or taxes, the executors may not have easy access to the funds to pay them. If a creditor or taxing authority collects from one beneficiary, he/she may have difficulty recovering pro rata from the others.

If there are any cash bequests, there may not be enough money in the estate to pay them.

If the Will provides for the beneficiaries in trust rather than outright, to keep their inheritances out of their estates for estate tax purposes, and to protect their inheritances against their creditors and spouses, these protections will be lost.

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Re: Transfer on Death question

Post by emmalinesweets » Thu Apr 06, 2017 8:23 am

The whole point of using a TOD is to avoid probate and keep a person's money from being used to pay off debt. The issue with that, especially with a home, is that this document comes before the will, as you mentioned.

I recently was the estate executor for my aunt. She did a TOD for her home, which was deeded to me. We didn't realize that this means that I actually didn't need to share the home proceeds with the people that inherited her estate in her will. Now, I am an honest person, so I personally gifted the other people their portion. But I didn't have to.

This could create lots of drama for families. But, for us, it allowed us to avoid probate, and we didn't have to use the money from the house to pay any of her debts, other than the debt that had liens on her home.

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dodecahedron
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Re: Transfer on Death question

Post by dodecahedron » Thu Apr 06, 2017 9:14 am

bsteiner wrote:If the Will provides for the beneficiaries in trust rather than outright, to keep their inheritances out of their estates for estate tax purposes, and to protect their inheritances against their creditors and spouses, these protections will be lost.


But could this issue be avoided by having the TOD or POD beneficiary be a trust?

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Re: Transfer on Death question

Post by bsteiner » Thu Apr 06, 2017 9:44 am

emmalinesweets wrote:The whole point of using a TOD is to avoid probate and keep a person's money from being used to pay off debt. ....


TOD assets are still subject to the decedent's creditors, though it may make it more difficult for the creditors to collect. If the amount involved is sufficient, the creditors may pursue it. It may get complicated if the creditor collects from one beneficiary rather than from all of them pro rata.

dodecahedron wrote:
bsteiner wrote:If the Will provides for the beneficiaries in trust rather than outright, to keep their inheritances out of their estates for estate tax purposes, and to protect their inheritances against their creditors and spouses, these protections will be lost.


But could this issue be avoided by having the TOD or POD beneficiary be a trust?


We do this for retirement benefits since you need to have a beneficiary for retirement benefits both to get the stretch and to protect against the decedent's creditors. We do this for life insurance since you need to have a beneficiary to protect against the decedent's creditors.

I've never seen anyone do it for other assets, though I suppose you could if the financial institution will allow it. As with life insurance and retirement benefits, you would still need to create the trusts in the Will or in a separate trust instrument. And of course you may end up making it harder for the executors to be able to pay debts, expenses and taxes, and you may still destroy any cash bequests. It may get complicated if the IRS collects from one beneficiary rather than from all of them pro rata.

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dm200
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Re: Transfer on Death question

Post by dm200 » Thu Apr 06, 2017 10:07 am

emmalinesweets wrote:The whole point of using a TOD is to avoid probate and keep a person's money from being used to pay off debt. The issue with that, especially with a home, is that this document comes before the will, as you mentioned.
I recently was the estate executor for my aunt. She did a TOD for her home, which was deeded to me. We didn't realize that this means that I actually didn't need to share the home proceeds with the people that inherited her estate in her will. Now, I am an honest person, so I personally gifted the other people their portion. But I didn't have to.
This could create lots of drama for families. But, for us, it allowed us to avoid probate, and we didn't have to use the money from the house to pay any of her debts, other than the debt that had liens on her home.


No experience with this, but it seems to me that creditors could go after TOD beneficiaries for the debts of the deceased. If they did that, then the results (collecting from one or more beneficiaries) could result in an unfair (but not illegal or improper) levy. When faced with collecting from more than one person, creditors will focus on the person from whom they are most likely to collect.

So, for example, if a creditor is owed $20,000 and there are 3 TOD/POD beneficiaries each receiving $25,000 ($75,000 total), and one beneficary is the most likely to have the funds now available and the most likely to collect from - then that one person might be out $20,000 (netting only $5,000). If this $20,000 debt had been paid from the estate and the distributions to the 3 would now be (net) $55,000 total - then each would have 1/3 of $55,000.

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BolderBoy
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Re: Transfer on Death question

Post by BolderBoy » Thu Apr 06, 2017 12:28 pm

bsteiner wrote:TOD assets are still subject to the decedent's creditors...

My sister and I figured this was probably true, so we opened a joint checking account into which we've put "estate settling" money. Very smooth so far.
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emmalinesweets
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Re: Transfer on Death question

Post by emmalinesweets » Tue Apr 11, 2017 11:33 am

In MN, the only debt that can be taken from a TOD for a home is liens. I just went through this with my aunt. I spoke with my lawyer as well as an estate CPA.

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Re: Transfer on Death question

Post by Katietsu » Wed Apr 19, 2017 7:11 pm

I recently went through probate with two different estates. The applicable state law was very clear in that anything that had a beneficiary listed and therefore did not go through probate did not need to be used to pay debts. The example that was used was a person with 1 million in an IRA and another million at the local bank in an account with a TOD designation. If these with the only assets then the nursing home, credit card companies and anyone else owed money was legally entitled to nothing. The beneficiaries still inherited regardless of debts.

The state I live in does not work this way.

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Re: Transfer on Death question

Post by RudyS » Wed Apr 19, 2017 9:25 pm

Katietsu wrote:I recently went through probate with two different estates. The applicable state law was very clear in that anything that had a beneficiary listed and therefore did not go through probate did not need to be used to pay debts. The example that was used was a person with 1 million in an IRA and another million at the local bank in an account with a TOD designation. If these with the only assets then the nursing home, credit card companies and anyone else owed money was legally entitled to nothing. The beneficiaries still inherited regardless of debts.

The state I live in does not work this way.


In the first state, would a joint account have the same protection as TOD? Seems similar. Thinking of bank rather than IRA.

NotWhoYouThink
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Re: Transfer on Death question

Post by NotWhoYouThink » Fri Apr 21, 2017 9:01 am

Interesting link from a similar thread.
http://info.legalzoom.com/can-power-att ... 21711.html

On the one hand, changing TOD or beneficiary designations can undo what someone carefully put in place in their estate plans. On the other hand, many people are sloppy in their estate planning and would be surprised at how their money would get distributed.

In the OPs case, it appears there is a protection against someone contesting the will. If the POA changes TOD designations, that makes contesting the will pointless, but it could prompt the obstructionist relative to take action against the POA for changing the estate plan. But who knows?

johnnyc321
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Re: Transfer on Death question

Post by johnnyc321 » Fri Apr 21, 2017 12:15 pm

SGM wrote:The POA is considering a transfer on death for an relative's account. The problem is that TOD negates the will in my understanding. The intention is to set up the same beneficiaries and proportions as the will. However, one of the heirs is an obstructionist who may challenge the will, and there is a statement in the will that if anyone challenges the will they will forfeit their inheritance just to prevent that heir from being obstructionist. I am concerned that if the heirs all receive their shares through TOD this person will then be free to start a law suit against the estate and no longer be constrained by the will. Any thoughts about that?

It looks like a revocable trust won't fly because the elderly relative once had one and revoked it without explanation. I am trying to avoid probate and headaches for the POA who will be the executor.


You (or the attorney-in-fact) need to retain an attorney to advise you on this.

Simply having a POA does not necessarily give the agent the authority to change beneficiary designations or TODs. If the agent is named as a beneficiary, that is considered a gift, self-dealing, and a breach of fiduciary duty if the POA itself does not grant the authority. Some POA statutes require that authority to have a separate signature or be initialed by the principal. If it is considered a breach and the principal is disabled or elderly, the action may fall under criminal statutes.

This has the possibility of opening the agent to all sorts of litigation. This is especially true based on the statement that one of the heirs appears to want to cause trouble. The cost of probate will be much cheaper than the resulting litigation.

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Re: Transfer on Death question

Post by johnnyc321 » Fri Apr 21, 2017 12:25 pm

dcdowden wrote:If all the major assets are covered by TOD, then I'm not sure what the 'Obstructionist' would have left to object to in the will.


If the complaining heir has a valid claim or belief that the will is invalid and his/her share is greater as a result of winning that case, he or she would then likely have an action against the POA for tortious interference with an inheritance, among other claims. It's pretty clear here the entire point of changing the TOD is an attempt to prevent the will challenge. Overall, this is a bad idea. Probate is not the end of the world.

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dm200
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Re: Transfer on Death question

Post by dm200 » Fri Apr 21, 2017 7:16 pm

RudyS wrote:
Katietsu wrote:I recently went through probate with two different estates. The applicable state law was very clear in that anything that had a beneficiary listed and therefore did not go through probate did not need to be used to pay debts. The example that was used was a person with 1 million in an IRA and another million at the local bank in an account with a TOD designation. If these with the only assets then the nursing home, credit card companies and anyone else owed money was legally entitled to nothing. The beneficiaries still inherited regardless of debts.
The state I live in does not work this way.

In the first state, would a joint account have the same protection as TOD? Seems similar. Thinking of bank rather than IRA.


It may not matter in the case of death, but during life a POD/TOD has no rights, while a joint owner has many rights. A POD/TOD can be removed or changed but a joint owner cannot.

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