By James W. Mallonee
A he manner of transferring wealth following the death of a patriarch is occurring more frequently like a life insurance policy; its called TOD, POD or ITF. The initials stand for, Transfer on Death (TOD); Pay on Death (POD); and, In Trust For (ITF) depending on which financial institution you use. The outcome of each is the delivery of a person’s financial account to a named individual or individuals at the death of the account holder. The idea being to avoid probate and transfer funds immediately following death. Almost all financial institutions have the ability to set up an account of this kind.
If the accounts are cash (savings or checking), there is no need to worry about a step-up in basis. If the account consists of stocks, bond or equities, the recipient will receive a step up in basis in the same manner as if the assets passed through probate or a trust instrument. The only real downside to this is the inability to manage the beneficiary’s distribution once it is made.
To manage the distribution, a Will or Trust instrument is needed. For example, if the beneficiary is disabled, he or she may receive a large sum of money from an account causing the beneficiary to possibly be terminated from continuing to receive their social security disability payments. This also includes Medicaid recipients. Moreover, you lose the ability to protect those beneficiaries from themselves should they have a dependency problem (e.g. gambling, alcohol or drug abuse). That’s where a Trust or Will document is best used.
Since the transfer of wealth by TOD, POD or ITF does avoid probate, can it also avoid beneficiary disputes and undue influence activities by unscrupulous individuals. The simple answer is NO. Beneficiary designations in Florida can always be challenged and invalidated. This is usually done by following the “Carpenter” rules involving undue influence where it can be proven that a confidential relationship exists, assisting in taking the person to the financial institution and isolating the individual from family and friends.
The troubling part of having a TOD, POD or ITF account set up is the lack of witnesses when preparing one of these accounts. There is no statutory requirement that a witness be present when there is the signing of signature card by an account holder naming someone as the recipient of one’s wealth. Worse, there is probably no record or notes of what motivated the account holder to have a TOD, POD or ITF account prepared for them. As a result, there is no person who can effectively state why and what transpired at the account creation.
A beneficiary who believes the account holder was unduly influenced can seek the assistance of the courts to determine if there was undue influence. Because this is not a probate dispute, the case is normally held under the civil court system. The side seeking to show undue influence, will need to depose everyone who had any contact with the account holder. This would include banking personnel, neighbors, family members and care takers. It will also involve the review of the account holders past transactions and any prior Will or Trusts prepared for said account holder to see the frequency of making beneficiary changes
Because the need to seek out all of the information to determine what the decedent’s actions and thoughts where leading up to the creation of the TOD, POD or ITF account, the cost to litigate can skyrocket. The cost, is of course, fronted by the parties litigating and defending and there is no guarantee of recuperating your attorney fees. This author has seen legal fees go to $100,000.00
before a settlement option was presented and accepted by the litigants. As a result, unless the account holder is looking to have the last laugh at their death with the assured infighting that will occur, preparing a TOD, POD or ITF account may not be the ideal situation for families with multiple siblings.
If you’ve been sold on TOD type of accounts, make certain you have witnesses or at least a notary present to acknowledge who signed the signature card and write a separate notation of why you are leaving the account to one individual and not the other children or siblings. If you are still afraid that your actions may result in litigation, contact the attorney of your choice and discuss with him or her to whom you want to leave your wealth too and avoid litigation.
This article is intended for informational use only and is not for purposes of providing legal advice or association of a lawyer – client relationship.
James W. Mallonee (Jim Mallonee) is a graduate with a B.A. degree from the University of South Florida and a Master of Science degree from Rollins College in Winter Park, Florida. He obtained his Juris Doctorate from the University of the Pacific, McGeorge School of Law in Sacramento, California. Prior to returning to Florida to practice law, Mr. Mallonee was employed by Intel Corporation for 22 years in such locations as New Jersey, Florida and California.
In addition to being a member of the Florida Bar since 2003, Mr. Mallonee serves on the Charlotte Community Foundation Committee for asset allocation and teaches Business Law at State College of Florida. Mr. Mallonee is also on the Board of Directors for the Military Heritage Museum located in Charlotte County, Florida.
His firm practices law in the following areas: Probate, Wills & Trusts, Guardianships, and Litigation in the areas of Real Estate, Guardianships and Estates. The firm has two locations in Venice and Port Charlotte, Florida.
James W. Mallonee, P.A.
946 Tamiami Trail, #206
Port Charlotte, FL 33953
(941) 206-2223
Facsimile (941) 206-2224
871 Venetia Bay Blvd., #225
Venice, FL 34285
(941) 207-2223