Make Sure Your Client’s Will and Lifetime Decisions Are In Sync

will documentPeople expect that their property will be distributed according to their will when they die. This is generally true, but the testator may have made decisions during his or her lifetime that override the will provisions.

The client’s will is ineffective to transfer particular assets at death if the form of ownership or beneficiary designations control, as in:

  • Joint tenancy property. Property held in joint tenancy will pass to the surviving joint tenant or joint tenants “by right of survivorship.” Real property, corporate securities, bank accounts, and motor vehicles may all be held in joint tenancy, and written agreements may be created to hold other forms of personal property in joint tenancy. CC §683. The decedent’s interest in a joint tenancy asset won’t pass under a will unless the joint tenancy is severed before death. 
  • Community property with right of survivorship. Married couples may hold real property as community property with right of survivorship. CC §682.1. This form of ownership provides the advantage of easy title transfer to the surviving spouse by means of an affidavit, similar to the process for terminating a joint tenancy. At the same time, both halves of the property are entitled to a stepped-up basis for income tax purposes on the death of either spouse. IRC §1014(b)(6). As with property held in joint tenancy, the decedent has no testamentary power over property held in this form.
  • Revocable transfer on death deed. Property subject to a revocable transfer on death (TOD) deed is transferred to the beneficiary or beneficiaries on the death of the transferor. Prob C §5652.
  • Pay-on-death accounts. A pay on death (POD) account is payable on demand to the “POD payee” after the death of the last depositor to die. Prob C §5302. The POD payee has no ownership interest until the death of the depositor, and the arrangement may be terminated at any time by the depositor during his or her lifetime.
  • Totten trusts. A Totten trust is an account held by the depositor in trust in a financial institution for a beneficiary or “transferee.” Prob C §§80–82. Totten trusts are similar to POD accounts, and are often used in custodial accounts under the California Uniform Transfers to Minors Act (CUTMA) (Prob C §§3900–3925). On the depositor’s death, the funds held in the account will be paid to the transferee on demand.
  • Securities registered in beneficiary form. Under the Uniform TOD Security Registration Act (Prob C §§5501–5512), an individual may own securities for the benefit of another by using the words “transfer on death” (or “TOD”) or “pay on death” (or “POD”) after the individual’s name and before the beneficiary’s name in the registration instrument. Prob C §5505. A TOD security is similar to a POD account; TOD securities may be reregistered in the name of the TOD beneficiary after the death of the last owner to die.
  • Life insurance policies. Death benefits payable under a life insurance policy pass to the beneficiaries designated by the owner of the policy and aren’t subject to disposition under the will of the insured.
  • Annuities, pension plans, and retirement plans. Like life insurance policies, annuities, pension plans, and individual retirement accounts (IRAs) pass to designated beneficiaries and aren’t subject to testamentary disposition.

Clients often forget about pay on death (POD) or beneficiary designations, don’t remember how title is held, and misunderstand the relationship between the will and these arrangements. This is where you, the attorney, come in: Explain these situations to the client, fact-check how title is held, and make sure that the estate plan accurately reflects the client’s intentions. You’ll find details on nonprobate and nontrust transfers in CEB’s California Estate Planning, chaps 7, 19-21.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2018. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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