As a longtime estate-planning attorney, it is my sense that more clients are working around (or ruining) their valid estate plans by using various nonprobate transfers – specifically POD (Payable on Death) and TOD (Transfer on Death) designations.
I see this change happening not only when clients come into my office to review their estate planning when they are alive, but this is also being discovered after the client passes away.
I ask “Why is this happening?” Do people just dislike attorneys so much that they will agree to sign anything put in front of them that promises to avoid attorneys at all cost? Do their children promote the use of nonprobate transfers with the goal of avoiding any post-death legal costs?
Or – what I often suspect may be happening – do people decide to sign these nonprobate transfer designations at their banks or financial institutions, and have no comprehension that these nonprobate transfers will actually defeat their valid estate plan?
They Can Be Useful in Certain Situations
As an attorney, I support having as many tools in the estate-planner’s toolbox as possible.
I often recommend using nonprobate transfers in various situations, especially for clients with no real estate, or those with small estates or uncomplicated goals and family situations.
My fear, though, is that, years after signing their estate plan, many clients sign these nonprobate transfer forms with little or no legal advice, and therefore they do not realize what these nonprobate transfers do, or the legal predicaments they can cause after the client dies.
Andrew G. Falkowski, Valparaiso 1998, is the owner of
Falkowski Law Firm, LLC, in West Bend. He focuses his practice on estate planning, elder law and special needs planning, and probate and trust estate administration.
A Shocking Revelation and Many Questions
Do clients who paid an estate-planning attorney for a will or trust understand that these nonprobate transfers actually override and defeat the purpose of their estate plan they signed?
Are they basing their decisions on sound legal advice or on the advice of a bank teller or employee of a financial institution? Recently, one of my legal assistants, who previously worked at a bank advised me that, as part of her training, the employees were actually given financial incentives for helping bank clients set up POD designations on their accounts. I found this revelation shocking.
Why would a legal department at a bank or financial institution ever want their non-attorney employees giving such powerful legal advice? Do these bank employees even ask or inquire if the client has a valid estate plan in place? Do they ask if the client understands that signing these nonprobate transfers will result in these accounts passing outside of the client’s estate plan?
Do they explain what happens to the account (or the share of the account) if one of the named beneficiaries on the POD or TOD designation dies prior to the client? Do they discuss what will actually happen to the share of a predeceased beneficiary? Do they discuss and advise the client that every POD and TOD designated asset should be reviewed and possibly updated after the death of a named beneficiary?
Even if the nonprobate designated account does pass to the surviving issue of the deceased child, what if those inheriting beneficiaries are minors or worse yet, what if those beneficiaries have special needs or are disabled and receiving government benefits?
I think it is safe to assume that very few, if any, of these important legal issues are actually being discussed with the client when the client decides to execute these nonprobate transfers.
One of the reasons clients tell me they consider using nonprobate transfers on accounts is because they want their children to have legal access to their funds as soon as possible, quite literally (“the day they die”). I hear this in many of my estate-planning meetings.
I generally advise clients that while this may be a laudable goal, there may still be time delays associated with nonprobate transfers, because the children cannot receive the funds until after the death certificate is issued.
Some clients then tell me they have – or are considering setting up – joint accounts with children (which is another conversation in and of itself). Hearing this line of reasoning, I try to explain that there are no bills in life that are so urgent that they must be paid within days of your passing.
As an attorney that works in estate administration, this is well known to me, as I see many probate estates and trusts pay the decedent’s final bills months after death or even at or near the end of the administration.
Future Dangers May Lurk When Relying on Nonprobate Transfers
As I read from the various case law updates, there have been – and I project will continue to be – more post-death court cases and legal disputes regarding use of nonprobate designations (and joint accounts) after clients die.
This is not to say there are not also legal disputes regarding wills and trusts after a client dies, but this seems to be a new burgeoning field of post-death litigation just waiting to happen.
How Can We Mitigate This?
Then I think, as estate planners, maybe we are just not doing a good enough job of explaining the risks and additional legal concerns of relying so heavily on nonprobate transfers and of how they can impact a clients valid estate plan.
Personally, I have tried to do a better job of explaining these risks in my client letters and at estate planning meetings, but I continue to sense this increased use and reliance on nonprobate transfers, even with clients who already have valid estate plans in place.
I do not suspect this is happening days after the client signs their new estate plan. Instead I think this is happening years later, when the client sells a home, inherits funds, or changes banks, etc.
Indirect Effects of Using Nonprobate Transfers
This increased use of nonprobate transfers is also having a major effect on post-death estate and trust administrations. When a client’s child calls after a death and we research the client’s assets, we are finding more assets passing nonprobate, which then leaves fewer liquid assets available for the personal representative or trustee to use to administer the will or trust. This lack of liquidity in estates can make accepting new estate and trust representation much more complicated and dangerous for attorneys.
It is common to get calls from a client’s children after a death, asking or stating something like:
All I need help with is cashing a few checks I received after death (after the children already closed the decedent’s bank accounts). I am also finding that many banks will not honor the Transfer by Affidavit to cash checks if the decedent has no current account relationship with the bank.
What should I do with the decedent’s vehicle, personal property, loose stocks, savings bonds, etc.?
I just need to sell the house. Everything else has been taken care of already.
Who is in charge of collecting and paying the decedent’s final bills, or preparing and filing the decedent’s final income tax return?
The increased use of nonprobate transfers is changing the entire dynamic of estate and trust administrations, and often this may be the first time the attorney learns that the client has relied so extensively on nonprobate planning.
I jokingly refer to post-death situations involving mostly nonprobate transfers as “parking lot law,” because all of the legal structure created in the client’s will or trust may now be lost or no longer controlling. I envision five children meeting at the bank parking lot after closing the bank accounts thinking, “I’m so glad mom set her accounts up this way, it looks like we don’t need an attorney” (until they do).
I have advised many of these children callers that there is no legal authority to act, and no person in charge of the estate because the client relied so heavily on nonprobate transfers. They basically paid for an estate plan that is no longer relevant.
In some cases, I have been willing to assist children with certain legal work, but in many of these cases where I was not involved in the client’s decision to use nonprobate transfers, I am simply declining any legal representation regarding estate services. I do not have the time, or appetite to take on limited-scope estate or trust representations. This is especially true when I find that the nonprobate designations may not even match with the distribution provisions stated in the will or trust the client had signed.
Takeaway: Do Your Best to Explain the Risks
Maybe there is nothing we can do as attorneys, and this should not bother me so much. As the old adage goes, “you get what you paid for.” So we should do our best to explain to our clients the risks of relying on nonprobate transfers.
Besides consistent client communication, I do not have any magic answers to this issue – but from my perspective, the increased use and reliance on nonprobate transfers is definitely a major thorn in the side of estate-planning attorneys.
This article was originally published on the State Bar of Wisconsin’s
Elder Law and Special Needs Blog. Visit the State Bar
sections or the
Elder Law and Special Needs Section webpages to learn more about the benefits of section membership.