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The implications of utilizing non-probative transfers, such as Beneficiary Deeds and POD/TOD designations, can be tricky to understand when preparing a Will.
Rule #1: Wills have no control over assets transferred by Beneficiary Deed or TOD
A common scenario: a client wants to avoid probate, so they apply “non-probative transfers” to their assets. By non-probative transfer, I am referring to using a TOD (transfer-on-death designation) on a bank or financial account or creating a Beneficiary Deed, in the case of a home.
However, issues arise when the client then wants to include more detailed instructions, or list contingent beneficiaries for these assets, in their Will.
It is important to realize that these mechanisms are entirely independent of each other. Essentially, your Will does not have “jurisdiction” over real estate that is being transferred via Beneficiary Deed or any assets that have a TOD (or POD “payable-on-death) designee.
Rule #2: Non-probative transfers “outrank” any instructions given in a Will.
What happens if someone gives instructions for real estate that is under a Beneficiary Deeded in their Will?
Upon the grantor’s death, the Beneficiary Deed would control. Any instructions in the Will would be ineffective. Likewise, any additional or contingent beneficiaries named, would have no claim to the real estate.
What happens if someone has a TOD/POD on a bank account, but provides instructions for that money in their Will?
Unfortunately, those instructions would be meaningless. Upon the death of the account owner, whomever is listed as the TOD/POD would receive the entire sum of the account.
Solution
If you want to both avoid probate and exercise a high level of control over your assets—typically, a trust is the best solution. However, everyone’s situation is unique. Ultimately, the best way to address these issues is to get personalized advice from an experienced, estate planning attorney.