Important Payable on Death and Transfer on Death Beneficiary Insights for Missouri Seniors
By now you should be considering the establishment of an estate plan. Yes you…even you need an estate plan. While the term “estate” may sound ostentatious and unnecessary to many, the truth is every Missouri senior adult can benefit from an estate plan regardless of their wealth. An estate plan simply communicates the grantor’s wishes for end-of-life and near-end-of-life decisions in a clear, written, and legally binding agreement. A legally binding agreement like an estate plan is merely an agreement that is legally valid and, therefore, enforceable to the extent that those who violate the agreement may be liable under Missouri law.
As you begin the estate planning process, your seasoned attorney should insist you take steps to avoid unnecessary probate administration for certain assets. Some of those steps include establishing non-probate transfer agreements. By establishing Transfer on Death (TOD) and Payable on Death (POD) beneficiaries on some assets, you allow your beneficiaries, trustee, or personal representative to expedite the distribution of your assets to friends, family and loved ones after you pass away. This non-probate process is frequently referred to as a “poor man’s trust” since it essentially acts as a free trust that easily transfers money to the owner’s beneficiary without the need for probate administration.
A TOD designation and a POD designation are merely agreements or contracts between an asset owner and a financial institution, governmental entity, or other asset monitoring entity. In both type of non-probate agreements, the owner of an asset designates a person or people to become the new owner(s) of assets at the time of the original owner’s death. The immediate transfer of assets to the beneficiary is strictly contingent upon the death of the original owner. Though this process may sound swift and morbid, it is without cost (free) and secure in that the process is established and sanctioned by Missouri law at Section 461.028 RSMo which reads in pertinent part: “…Property may be held or registered in beneficiary form by including in the name in which the property is held or registered a direction to transfer the property on death of the owner to a beneficiary designated by the owner…Property is registered in beneficiary form by showing on the account record, security certificate or instrument evidencing ownership of the property the name of the owner, and the estate by which two or more joint owners hold the property, followed in substance by the words “transfer on death to ______ (name of beneficiary). In lieu of the words “transfer on death to” the words “pay on death to” or the abbreviation “TOD” or “POD” may be used..”
These non-probate arrangements are important to understand and easy to implement. Often confused for one another by many people, in most instances a POD designation is customarily applicable to bank accounts such as personal checking, savings or Certificates of Deposit (CD). Conversely, TOD designations are normally used with titled assets, brokerage accounts, stocks, bonds and other investments. For example, an owner of a CD held by a bank can designate a POD beneficiary to inherit any money in the CD after the owner’s death whereas a TOD beneficiary may inherit a vehicle upon the owner’s death.
The establishment of a POD or TOD is rather easy. In most instances, the financial institution, governmental entity, or other asset monitoring entity merely requires the asset owner complete a form. While historically those forms were paper driven, more recently those parties are converting to online forms for ease of use. In either instance, the account holder or owner needs only to notify the financial institution, governmental entity, or other asset monitoring entity of who the beneficiary is. The completed form gives the financial institution, governmental entity, or other asset monitoring entity authorization to convert the account to a non-probate beneficiary account.
The named beneficiary is never entitled to immediate ownership. Instead, once the owner names a POD or TOD beneficiary, the beneficiary will not have direct access or ownership to the asset until the owner dies. At all times while the asset owner enjoys normal mental capacity, he or she retains the privilege to terminate, alter, or amend the named POD or TOD beneficiary.
Beneficiary designations should be performed carefully. Many a client of our law firm has shared with me that they designated their eldest child as sole beneficiary with the expectation that child will share the asset with others. While this moral obligation is observed by some sole beneficiaries, in many instances, the sole beneficiary will disregard their moral obligation and keep the asset for themselves. Pursuant to Missouri law, a POD and TOD account can also have multiple beneficiaries. While the asset owner is alive, Section 461.062.3(3) RSMo. provides he or she may designate one or more primary beneficiaries and one or more contingent beneficiaries. Section 461.062.3(5) provides that all beneficiaries share equally unless a different percentage or fractional share is stated for each beneficiary.
It is important to note that a POD and TOD designation is more powerful than a Last Will & Testament (LWT) in Missouri. While a LWT usually contains beneficiary designations for a grantor’s possessions, a beneficiary designation by POD and TOD will supersede the LWT designations in the event of a discrepancy or conflict. For example, if an asset owner designates his eldest child as the POD or TOD beneficiary for a personal checking account, and the LWT of the same asset owner reads that his three children will share distribution equally as beneficiaries, the non-probate designation will supersede the LWT and will prevail in most Missouri courts. In other words, the named beneficiary on the POD account is not required to honor the asset owner’s LWT, which makes it imperative that the owner is quick to amend, alter, or terminate a non-probate designation if their circumstances warrant change.
Who can be named a POD or TOD beneficiary? Missouri law is very flexible regarding beneficiary designations. Asset owners can choose to have one beneficiary for several accounts or multiple beneficiaries for one account. Owners can name a stranger, a friend, a loved one, or an IRS-recognized charity. In most instances, an owner can even designate a successor beneficiary in case the first named beneficiary predeceases the asset owner. Pursuant to Section 461.062.3(13), if the distribution is to a minor or disabled adult, the transfer may be made pursuant to the Missouri transfers to minor law, chapter 404, the Missouri custodian law, chapter 404, or a similar law of another state. If there are no living POD or TOD beneficiaries at the time of the asset owner’s death, the asset can become part of the decedent’s estate and may go through the probate administration process.
How do beneficiaries claim ownership of a POD or TOD asset? Claiming a POD account is a straightforward process. The beneficiary goes to the bank or credit union holding the account and presents a copy of the owner’s death certificate. They will also be required to show valid identification and fill out any required transfer forms. While some states have a short waiting period; in Missouri, the beneficiary can claim the funds immediately. Thereafter, beneficiaries should take steps to re-register the asset in their names.
Todd Miller is a monthly contributor and regularly writes and speaks on various legal topics including bankruptcy, estate planning, probate, and elder law. He formed the Law Office of Todd Miller, LLC, 1305 Southwest Blvd., Ste. A, Jefferson City, Missouri in 2006. He has been awarded the Substantial Contributor Attorney Award by the Missouri Bar and ranked as one of the “Top Attorneys in Missouri” by The Legal Network. Mr. Miller earned his juris doctorate degree from the University of Missouri School of Law in 1999 and graduated with honors from Lincoln University in 1991. You may find him at www.toddmillerlaw.com (573) 634-2838 or on Facebook, Instagram, and Twitter.