Can a transfer on death account be contested

There are many transfers of wealth at the time of death through POD (Pay on Death) and TOD (Transfer on Death) designations on bank accounts.  Such distributions are outside of a probate or trust administration.  A question often posed to us is “Can I challenge a POD designation made on a bank account by my [*] before [his or her] death?”   The answer is yes.

Florida case law allows for the challenge of such designations.  In Keul v. Hodges Blvd. Presbyterian Church, the Court invalidated a POD designation based upon undue influence.  The Court said, 

…a POD account, although not in the strictest sense a testamentary devise and not subject to the formalities required by wills, functions as a will substitute and partakes of many of the same equitable considerations that apply to testamentary transfers.  Florida law and policy against abuse of fiduciary relationships apply to contracts, inter vivos transfers, and testamentary transfers, and are properly applied to determine whether a POD designation has been obtained through undue influence.

Such designations can also be challenged by proving that the maker lacked the capacity to make such a designation.  Florida contract law requires that the maker have “capacity” (be competent)  for such a designation to be effective.

Challenges have also been made where there was a forgery or where a fiduciary (eg. attorney in fact under a power of attorney) wrongfully modified an account.  The owner of the account must be the person who executed or authorized the designation.

Achieving a successful outcome in a beneficiary designation case requires extensive investigation and collection of evidence to prove the elements in any of the above challenges.  Obtaining evidence from the financial institution, financial consultant/planner, estate planning attorney, doctors, family members, and friends may all be required.  Most importantly, finding a law firm familiar with this area of the law is critical.

A designated beneficiary on a Transfer on Death (TOD) account has only an expectancy interest in the account and cannot use the funds in the account until the death of the account holder. With no present interest the designated beneficiary cannot withdraw funds for his or her personal use during the account holder’s lifetime. Even if the designated beneficiary is also the agent under a durable power of attorney for the account holder, withdrawals must be solely for the account holder’s benefit.

Can the Funds Be Withdrawn Early By the Beneficiary?

Many people believe since they will inherit the money anyway, they have some right to it. They are wrong. In fact, if the designated beneficiary were to remove funds from the bank account without the account holder’s permission or as agent under durable power of attorney for his or her own personal use, it may destroy the expectancy interest. Destroying the expectancy interest essentially means cancelling the TOD designation on the account and losing the right to inherit the account.

To illustrate:

Suppose Dad is in a nursing home. Son is named as designated TOD beneficiary on dad’s Chase bank account containing $100,000.00 and is dad’s agent under a durable power of attorney. Son takes out $50,000.00 because he figures he is going to inherit it anyway. But dad has two daughters as well and are named beneficiaries of his estate.  They could contest any removal of funds during the dad’s lifetime in an accounting or turnover proceeding in the Surrogate’s Court. At the end of the proceeding after spending significant money to defend himself, the son could lose the right to the monies remaining in the account at dad’s death and the monies taken – despite the fact that son was named as TOD beneficiary on the account. Son could then be ordered by the Court to return these funds to the estate with interest of up to 9% from the date the funds were removed for distribution in accordance with his father’s last will and testament.

An Estate Attorney Can Provide Guidance

Do not make the mistake that many people make of assuming that since you are going to inherit the account anyway, you can take some of the money out during the account holder’s lifetime. This could have unintended consequences and cost you a lot more money in legal fees and interest if your removal of the funds is contested after the account holder’s death. If you would like to learn more, visit our Probate and Estate Administration page.

Australians have ‘testamentary freedom’ to leave their estate to whoever the please in their will. However, a will-maker has overarching duties to care for particular people: namely a spouse, child and/or dependents. In every jurisdiction in Australia, there are laws which enable such people to contest a will they consider unfair in what is known as a family provision application.

Aware of the prospect of a contested will, people frequently ask how to stop someone contesting a will? While you can’t remove a person’s right to contest the will, you can implement estate planning strategies to make it unattractive.

This post covers estate planning strategies a living person can utilise to avoid a will dispute. If a loved one has died, read more about will disputes or call us now on 07 3073 2405 for a free, no obligation consultation with an expert wills and estates lawyer.

5 Strategies to Stop Someone Contesting a Will

1. Inter vivos Transfer of Assets

Gifting assets while you are alive is known as an inter vivos transfer. Needless to say, if a person dies and does not own any assets, and is not entitled to the benefit of any assets held by someone else, there is no estate, and no matter what the family and friends, or others, may have hoped for or expected from the deceased, there will not actually be anything available to fulfill their dreams.

For those who have built up a store of assets but also wish to have no assets on the day they die, careful planning and a degree of risk taking are involved

Risks of inter vivos transfers

For a transfer to effectively achieve its goal of eliminating the asset from the estate, it must be absolute and unconditional. The person transferring the asset (the ‘transferor’) cannot continue to exercise control over it, or be able to ask for it to be returned.

• The costs of transferring assets include fees payable for advice and professional assistance, and disbursements.
• Transferring an asset without receiving any payment for it amounts to a gift. If the asset is real estate, then in NSW Valuation Fees and Stamp Duty will be payable. The more valuable the asset, the more the Fees and Duty.
• The transfer may have unintended consequences, such as triggering a Capital Gains Tax event, or affecting Centrelink and other Government benefits.
• The transferor should consider how to survive if he or she lives longer that was expected at the time of the transfer, or unforeseen factors arise, or relationships essential to the transfer plan sour.

Beware Notional Estate Laws

The NSW Succession Act puts obstacles in the path of those who transfer assets to deliberately defeat the claims of people who are considered by the law to be likely to be entitled to a share of the estate of a person. The Courts are given the power generally to set aside transfers made within 3 years before the death of the transferor, or 1 year in some cases. Notional Estate provisions apply not just to estates where the deceased was a resident of NSW but can extend to estates of people living in other states if they held assets in NSW.

Case study: Bob recently died having lived his entire life in Brisbane, QLD. Bob had no spouse but had 1 child, Alex, he hadn’t seen for 20 years because he disapproved of her life choices. Bob owned a house in Brisbane and a rental property across the border in Tweed Heads, NSW. A week before he passed away, Bob transferred his house and rental property to his neighbour because he didn’t want his daughter to receive anything from his estate. Bob created a will with a DIY will kit and made it clear that he had transferred everything to his neighbour because he supported the Broncos and Alex had spitefully chosen to support the North Queensland Cowboys. Alex used this note to support her family provision application for a share of Bob’s estate, successfully relying on the NSW Notional Estate laws to include not just the NSW property in the estate but also the main residence in Queensland.

2. Strategic Ownership Arrangements

In Australia, two or more people holding property commonly hold it either as tenants in common or as joint tenants. If you’re not sure what your situation is, a cheap title search can reveal the proper ownership situation. As you will see, it may have a significant impact on your estate planning …

What is the difference between joint tenants and tenants in common?

When two or more people become the owners of the same asset or property, the law presumes that they each hold a separate equal share in the whole asset, but if there is evidence that they have acquired the asset in unequal shares, they will own it in unequal proportions. Each owner can legally deal with his or her share separately from the others, and can give the share in his or her Will. This kind of ownership is referred to as a “tenancy in common”.

Sometimes owners of an asset wish to be entitled to it equally, and to ensure that if one of them dies, the other owners will automatically become the owners of the asset at the time of the death of one of them. This is known as “survivorship” and the ownership is referred to as a “joint tenancy”.

Because the law operates in this way, an owner of an interest as joint tenant cannot make a valid gift of it in his or her Will. A joint tenant can “sever” the joint tenancy in writing, and then the ownership reverts to a tenancy in common.

Is a jointly owned asset part of the estate?

Because of automatic, instant, survivorship of the interest of a joint tenant to the other joint tenant/s on the death of the owner, the interest does not form part of the estate.

Takeaway: If you want to ensure an asset passes to a loved one, you can change the title to record the ownership as tenants in common. You should be mindful of taxation implications such as Capital Gains Tax or Stamp Duty which may apply depending on your circumstances. Contact a will solicitor for advice.

3. Keep your Life Insurance outside your estate

The proceeds of a life insurance policy are generally protected from being used to pay estate debts.

You should take advantage of this by ensuring you nominate a beneficiary of your life insurance who is a person, rather paying it to the legal personal representative of your estate.

4. Restructure Asset Ownership

A trust is formed when the owner of an asset declares by way of a Trust Deed or other document that he or she, or another person, will hold the asset as Trustee for the benefit of one or more other people.

Once done, control of the asset and benefits from it are lost, and this action cannot be undone by the original owner, so it is essential that the Trustee is carefully chosen.

“Discretionary” trusts allow the Trustee to choose which of a list of people named in the Trust document will receive the capital and income of the Trust from time to time. A “testamentary” trust is created by a Will, when the deceased gives an asset to a person to hold for the benefit of specified people, often because they are under 18 or incapable for some other reason of owning the asset absolutely.

A trustee has no beneficial rights in an asset and must always act according to the conditions on which the Trust is established and subject to the Trustee Act. Always consult with a legal professional before making any significant decisions.

How can you use an inter vivos trust to stop will disputes?

A person no longer owns an asset given to a Trustee during his lifetime and will not form part of his or her estate on death, unless he or she is a beneficiary of the Trust.

5. Keep Superannuation outside your will with a Binding Death Benefit Nomination

How do superannuation death benefits work?

The law relating to Superannuation is complex. Superannuation benefits are held by the Trustee of the Fund, for the members, on the terms of the Fund’s Trust Deed and as provided by the relevant legislation. They are not estate assets at the time of the death of the member, but may become assets of the estate if the Trustee decides to pay them to the estate.

Summary: Generally, the Trustee controls decisions as to who receives super benefits. You can decide who receives your super by creating a Binding Death Benefit Nomination.

What is a Binding Death Benefit Nomination (“BDBN”) and how does it work?

A valid BDBN is a means by which a person can direct the Trustee of a super fund to pay benefits to particular beneficiaries. It can only be made in favour of people who are regarded as “Superannuation Dependants”.

When a valid Binding Death Benefit Nomination exists the Trustee has no discretion – it must be followed. A BDBN is useful for keeping benefits out of the estate. It can be changed by the member at any time so control is not lost.

How to make a BDBN?

Procedures vary between superannuation funds. You should consult with a will solicitor who can ensure you make a valid nomination and to discuss how you ought to direct your super funds to reduce the chance of conflict and to ensure your loved ones are provided for.

What happens if I don’t make a superannuation binding death benefit nomination?

If the Trustee has not received a BDBN it will exercise its discretion to pay the super benefits. It will contact the Executor of the member’s estate, collect information about the member’s dependants and notify them that they may make a claim, and once satisfied that it has all relevant information, will decide which beneficiaries should receive payments, and in what shares. It may also decide to pay some or all to the estate, and the benefits would then be passed on according to the terms of the Will.

Can a transfer on death deed be contested in Ohio?

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On what grounds can a will be contested in Australia?

How do you avoid will being contested?