Avoiding Probate By Using Beneficiary Designations

In New York, there are several ways to distribute assets at your death other than through provisions in a will or trust. In fact, it is possible to dispose of many of their assets by using “beneficiary designations.”

Pay On Death Accounts

“Pay On Death” (POD) accounts (also called Transfer on Death or TOD accounts) are arrangements between a bank, credit union, brokerage or other financial institution and a client. These arrangements allow the client to designate a beneficiary who will receive the client’s assets if the client dies. These assets could include money, savings bonds, stocks, bonds or other account holdings.

With POD accounts, the client owns and controls the account and the assets in it until the client dies. This means that the client can spend any of the assets in the account and can even close the account. This is because the beneficiary has absolutely no rights to the account until the client dies, assuming the beneficiary is still named on the account at the time of the client’s death.

POD Account Where The Account Is Co-Owned

If the POD asset is jointly owned (like a joint bank account between spouses), the POD beneficiary inherits the account only after both owners die. If the spouses die separately, the surviving spouse generally receives the account under a “right of survivorship.” The surviving spouse then owns the account outright and has the right to dispose of the account assets as he or she sees fit. The surviving spouse also may revoke the original beneficiary and name a new one.

Claiming POD Assets Upon The Death Of The Client

Assets in a POD account transfer by operation of law upon the client’s death. This means that the transfer of assets is automatically triggered by the client’s death and occurs immediately.

The exact procedure for claiming POD assets depends on the asset. Generally, the process involves the following—

Bank Accounts

After the death of a POD client, the POD beneficiary can claim the money in a bank account by presenting a certified copy of the client’s death certificate along with proof of the POD beneficiary’s identity (such as a driver’s license, birth certificate, or passport). If the POD account named more than one beneficiary and not all of them survived the POD client, then the surviving beneficiary (or beneficiaries if there is more than one) must also present certified copies of the death certificates of the deceased beneficiaries.

Certificates Of Deposit (CDs)

Certificates of deposit are claimed similarly to Bank Accounts. However, while a beneficiary can typically close a CD without an early withdrawal penalty, transferring ownership to the beneficiary but keeping the account open sometimes presents issues.

The problem of claiming a CD arises in situations where the CD was opened when interest rates were high and the beneficiary wants to benefit from favorable interest terms. While some banks and credit unions will convert the original CD into the beneficiary’s name and allow the beneficiary to keep the original CD interest rate and maturity date. Others, however, require that the original CD be close before the beneficiary can take ownership of the CD funds. The closing of the original account terminates the original favorable terms and the beneficiary must then open the new account under current rates and terms.

Brokerage Accounts

Brokerage accounts typically allow a client to establish a designated beneficiary “plan.” The plan document then sets out what will happen with the account funds upon the client’s death. For example, a brokerage account plan may require a beneficiary to provide information including a completed designated beneficiary plan distribution form, a certified copy of the client’s death certificate, a notarized affidavit of domicile, and a tax waiver if required by state law. Proof of the beneficiary’s date of birth and relationship to the client account holder also may be required.

Brokerages also frequently reserve the right to require additional documentation, to consult counsel, and to initiate legal proceedings in order to determine the proper distribution of account assets. They also may withhold a portion of the funds payable to the beneficiary for the payment of applicable taxes.

For help with these and similar issues, be sure to contact an NY experienced elder law estate planning attorney today.

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