Putting together an estate plan is an important step towards financial security. Unfortunately, a single signature to a POD or TOD account document could negate a carefully crafted will. A variety of accounts have these designations, referred to as payable on death (POD) or transferable on death (TOD). These designations allow the owner of the account to name a beneficiary to automatically receive payment when the account holder dies, avoiding probate.
Although the ability to avoid probate can be appealing, beneficiary designations can cause headaches if they are not carefully coordinated with the rest of your estate plan. Accounts with these designations are fairly common, and the issue of the beneficiary designation causing problems with the larger estate plan has become so prevalent that it was recently addressed in an article published in The Wall Street Journal. The takeaway of the article was to ensure that the beneficiary designations align with the intentions of the estate plan. Some tips to help reduce the risk of issues include:
- Review. Take the time to review beneficiary designations on all payable on death and transfer on death accounts. These can include bank accounts, brokerage accounts, retirement accounts and insurance policies. Ideally, review these documents every couple of years. If nothing else, make sure to review them after major life events like marriages, divorces, deaths in the family or the birth of a new family member.
- Update. When major changes occur, update beneficiary designations and estate plans.
- Discuss. It is generally wise to be upfront with your wishes. Sharing your estate plan goals with your loved ones can help ease the distribution process. It can reduce the risk of arguments and legal battles that may be fueled by confusion. Each heir pursuing the legal battle may genuinely believe that they are upholding your wishes. This can be avoided by openly discussing the plan.
The importance of reviewing and updating estate plans on a regular basis cannot be overstated. Many major life events, like a marriage, do not result in the cancellation of previous wills. As a result, a will that is outdated could provide assets to those who are no longer involved in your life while loved ones are cut out.
Another major event that warrants a review of an estate plan is a major move. If your estate plan was put together in another state and you have since moved to Florida, it is wise to have a local probate administration attorney review your will, trust, powers of attorney and other documents. This will help better ensure that the documents are in line with state law.