The Hidden "Transfer on Death" (TOD) Trap: Why Your Investment Accounts Might Still End Up in Probate

Quick Summary: Many Florida residents assume listing a "Transfer on Death" (TOD) or "Payable on Death" (POD) beneficiary protects their accounts from probate. However, if your financial institution merges or transfers your account to a new company, the original beneficiary paperwork can get lost. Without written confirmation from the new institution, your heirs may be forced into probate even if your monthly statements list them as beneficiaries.

We are noticing an alarming trend happening more frequently here in Florida regarding estate planning and probate. It is a situation where families believe they are fully protected from probate, only to find out too late that a simple clerical error has cost them months of time and thousands of dollars.

If you or your parents have investment accounts with TOD (Transfer on Death) or POD (Payable on Death) designations, you need to be aware of this specific risk.

The Problem: When Accounts Switch Institutions

A POD (Payable on Death) or TOD (Transfer on Death) designation is essentially a beneficiary designation. It names the person (or persons) who will inherit the account immediately after the account holder passes away, theoretically avoiding the court process of probate.

However, over the lifespan of an individual, financial institutions often change:

• You might move your money from one bank to another.

• The financial institution itself might be bought out.

• Two institutions might merge.

When these transfers happen, it is usually assumed that everything about the account—including your beneficiary designations—transfers automatically. This is not always the case.

A Real-Life Warning: The "Magic Piece of Paper"

To illustrate why this matters, look at a recent situation involving a client here in Florida.

The parent had an investment account worth hundreds of thousands of dollars. She had done everything "right" to avoid probate:

• She had a Lady Bird Deed for her home (which successfully passed to beneficiaries).

• She had a Trust for other assets.

• She had filled out a form listing her two sons as TOD beneficiaries on her investment account.

Years later, the investment company transferred the account to a different company (likely due to a merger or buyout). For years, the mother received quarterly statements from the new company that listed her name as the owner and explicitly listed her two sons as the TOD beneficiaries right on the paper.

The Shocking Result

When the mother passed away, the sons went to claim the funds. The institution refused to release the money.

Why? They claimed they never received the "magic piece of paper"—the original form the mother had signed years prior with the original institution. Even though their own statements listed the sons as TOD, they argued the designation was not valid without that original document.

The Consequence: The family was forced to hire an attorney, pay legal fees, and open a probate proceeding just to access the money that was supposed to transfer automatically.

How to Protect Your Assets (A Checklist)

This situation is an "easy fix" if you catch it while you are alive. To prevent your family from facing this unexpected probate hurdle, follow these three steps:

1. Get Written Confirmation Immediately

When you first set up a TOD or POD online or via fax, do not assume it went through just because you hit "submit."

• Action: Ask for confirmation in writing (email or letter) stating exactly who the beneficiaries are.

2. Re-Confirm After Every Transfer

If your bank changes names, merges, or if you move your funds to a new brokerage:

• Action: Contact the new institution and ask, "Did my TOD beneficiaries transfer? Do you have the original form on file, or do I need to sign a new one?"

• Action: Request a new confirmation letter from the new institution confirming the beneficiaries are active.

3. Do Not Trust the Monthly Statement

As seen in the example above, seeing "TOD: [Name]" on your monthly statement is not always proof that the legal requirements have been met.

• Action: If you don't have a separate confirmation letter or the original signed form, call the institution to verify they have the actual legal documentation on file.
  

Frequently Asked Questions (FAQ)

-What is the difference between POD and TOD? They generally mean the same thing regarding inheritance. POD stands for "Payable on Death" and TOD stands for "Transfer on Death." Both function as beneficiary designations that allow an asset to pass directly to an heir without going through probate.

-Can a bank refuse to pay a beneficiary even if they are listed on the statement?

Yes. We have seen instances where a financial institution refused to release funds because they could not locate the original signed paperwork from years prior, even though the monthly statements listed the beneficiaries correctly.

-What happens if the bank loses my beneficiary form? If the institution cannot find the form and refuses to honor the designation, your heirs may have to open a probate administration to access the funds. This involves court costs, legal fees, and a delay in receiving the money.

Need Help with Florida Probate or Estate Planning?

If you have questions about beneficiary designations, or if you are facing a situation where a financial institution is demanding probate, don't hesitate to reach out so we can schedule you for a free consultation. We are atCause Law Office - the Non-Stuffy Attorneys.