The form of ownership determines how property will be managed during the owner’s lifetime and how it will be distributed at the owner’s death. Alternative methods of transferring property on death are sometimes known as “nonprobate transfers,” which include transfers made under California Probate Code §5000.
If a bank account is payable‑on‑death (POD) or a retirement or brokerage account is transfer‑on‑death (TOD) with a named beneficiary, the account passes directly to that beneficiary when the owner dies. The beneficiary receives title to the account without going through probate.
Using named beneficiary documents in an estate plan is an effective way to keep assets out of the long and sometimes costly probate process, However, unless a person makes such documents part of a comprehensive estate plan, he or she they may end up causing confusion and hassle for his or her their heirs and property may pass contrary to their decedent’s actual wishes.
Estate planning is a combination of legally operative documents, asset titling, and beneficiary designations. It is important that these different parts work in concert with each other, rather than at cross-purposes. PODs and TODs may be useful in some situations, but careful attention must be paid to avoid unintended and unwanted results if they contradict an estate plan that’s already in place. It’s not that these accounts cannot or should not be used, it’s just that they have to be coordinated carefully with the rest of the plan. If there is more than one child and you make a paid on death account in favor of just one, it’s bound to cause misunderstanding or even worse, disinheriting children not listed as beneficiary(ies).
Payable on Death (POD) (Bank Accounts)
California courts regularly recognize the validity of payable-on-death accounts and allow them to avoid going through probate. This kind of account has been called the “poor man’s trust.” In California, you can convert almost any bank account into a payable-on-death account by filing forms with the bank designating a beneficiary to receive the funds when you die. This kind of account leaves you total control of the assets during your lifetime. You can change your beneficiary at any time and are free to leave as much or as little money as you like in the account. All you need to do is properly notify your bank of whom you want to inherit the money in the account or certificate of deposit. The bank and the beneficiary you name will do the rest, bypassing probate court entirely. It’s that simple.
As long as you are alive, the person you named to inherit the money in a payable-on-death (POD) account has no rights to it. If you need the money, or just change your mind about leaving it to the beneficiary you named, you can spend the money, name a different beneficiary, or close the account.
Transfer on Death (TOD); Uniform Transfer-on-death Securities Registration Act
The rules are basically the same on TOD accounts. When you register your ownership, either with the stockbroker or the company itself, you make a request to take ownership in what’s called “beneficiary form.” When the papers that show your ownership are issued, they will also show the name of your beneficiary.
After you have registered ownership this way, the beneficiary has no rights to the stock as long as you are alive. But after your death, the beneficiary can claim the securities without probate, simply by providing proof of death and some identification to the broker or transfer agent. (A transfer agent is a business that is authorized by a corporation to transfer ownership of its stock from one person to another.)
Transfer on Death (TOD) Deeds for Real Property in California
California also lets you transfer real estate outside of probate with a Revocable Transfer on Death Deed, often just called a TOD deed. This tool is different from the POD and TOD accounts described above because it applies to your home, not to a bank or brokerage account. Under California Probate Code §§ 5600–5696, you can record a TOD deed naming a beneficiary who will receive your home when you die. You keep full ownership and control while you are alive, and you can change or cancel the deed at any time before death.
A TOD deed can only be used for a single-family home, condominium, or residential property with up to four units. Lawmakers originally passed this law on a trial basis, then extended it through January 1, 2032 (Cal. Prob. Code § 5600(c)). Like a POD or TOD account, a TOD deed must be coordinated with your will or trust. If it conflicts with those documents, the deed controls, which can lead to the same kind of unintended disinheritance described below.
POD and TOD Mistakes to Avoid
- The first mistake is assuming that a person’s will can sufficiently sort out any discrepancies between the distribution of assets in the will and named beneficiary forms. The forms always take precedence over the will, so it is crucial that a person coordinate the documents.
- Inadvertent disinheritance/“over-inheritance” of beneficiaries. Intended beneficiaries can be inadvertently “disinherited” or “overly-inherited” by PODs/TODs in different ways. For example, you may designate your children as the beneficiaries at your death. If one of your children predeceases you, your grandchildren may be disinherited and your deceased child’s share may go to your other children.
- PODs/TODs may cover so much of your total assets that there may be nothing left in your Estate (or Trust) to fulfill bequests contained in your Will (or Trust). For example, you may have dollar-amount bequests listed in your Will to your favorite charities (or to certain individuals) that cannot be fulfilled because your POD/TOD designations have diverted too much of your assets away from your probate estate, leaving insufficient funds to satisfy the bequests you intended.
- Estate (or Trust) liquidity problems. When assets flow to the Estate (or Trust), they are generally readily available for payment of the deceased’s debts and expenses. If PODs/TODs cover so much of your total assets that there is not enough left to pay debts and expenses, this can create a headache for your Executor (or Trustee), who may have to chase down POD/TOD beneficiaries for contribution.
- Direct distributions to minors and incompetents. Wills and Trusts are often drafted in a way that avoids direct distributions to minors and incompetents, in order to avoid a need for costly guardianship proceedings. When assets pass directly to minors or incompetents under PODs/TODs, this drafting protection is lost. Not naming a secondary (contingent) beneficiary on POD account. In California, on the death of the sole account party or of the survivor of all of the account parties the heirs of a predeceased POD payee have no interest in the account.
- Failing to name a beneficiary on IRA or other tax deferred investment. Sometimes people neglect to name a beneficiary or they name someone who dies before them and they fail to name a backup beneficiary. In all these cases, the IRA is treated as if it did not have a beneficiary. When an IRA doesn’t have a beneficiary, the financial institution will look at its own contract with the IRA owner (the “custodial agreement”) to determine how that account will be distributed after the owner’s death. The terms of these agreements vary widely.
- An account owner names his/her estate as beneficiary. Too often, rather than leaving the designation blank, an account owner will name his/her their estate, thinking it would be convenient to let their will control how the account is distributed. Forgetting to update the beneficiary forms after major life events such as marriage, divorce, births and deaths. It is tempting to forget about such forms after filling them out, but it is crucial that a person review such forms regularly to ensure that the documents still reflect his/her their wishes. If you wish to gain more information including learn more about California probate please contact Quinn & Dworakowski, LLP for a free consultation. We will spend time with you to answer your questions. From our office in Southern California, we represent families in all Southern California counties, including Imperial County, Los Angeles County, Orange County, San Bernardino County, San Diego County, others spread across the state and interested parties outside California.
Frequently Asked Questions
What is the difference between a POD account and a TOD account?
A POD, or payable-on-death, designation is used for bank accounts and certificates of deposit. A TOD, or transfer-on-death, designation is used for brokerage accounts, stocks, and bonds. Both work the same way: the beneficiary has no rights until you die, and the asset passes to them without probate.
Do POD and TOD accounts avoid probate in California?
Yes. Under California Probate Code § 5302, funds in a POD account pass directly to the named beneficiary at death without court involvement, and the same is true for TOD securities accounts.
Can a TOD deed pass my house to my children without probate?
Yes. California allows a Revocable Transfer on Death Deed for a single-family home, a condominium, or a residential property with up to four units (Cal. Prob. Code § 5610). The deed must be recorded before death to work.
Does a POD or TOD beneficiary designation override my will?
Yes. Beneficiary designations on POD accounts, TOD accounts, and TOD deeds take priority over instructions in a will. This is why these designations must be reviewed alongside your will and trust.
What happens if I forget to name a beneficiary on my IRA?
If no beneficiary is named, or your named beneficiary died before you, the account is usually paid to your estate and must go through probate. This also removes the option to stretch required distributions over a beneficiary’s life expectancy.
Should I update my POD or TOD accounts after a divorce?
Yes. California law sometimes revokes a designation naming an ex-spouse automatically, but you should not rely on this. Update every beneficiary form after a divorce to reflect your current wishes.
What should I do if my POD/TOD beneficiaries conflict with my trust?
Talk with an estate planning attorney before the conflict causes an unintended result. Quinn & Dworakowski, LLP can review your beneficiary forms alongside your will or trust to make sure they work together.
Disclaimer: This article is intended to provide general information. The content of this publication is for informational purposes only. Neither this publication nor its author is rendering legal or other professional advice or opinions on specific facts or matters. No attorney-client relationship is created by this advisory, nor by any response to the information herein, unless and until a conflicts review has been conducted by Quinn & Dworakowski, LLP, and a written agreement containing all terms of representation has been signed.
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