Unintended Consequences of Transfer on Death Registrations

July 31, 2020 | By Nina B. Stryker

People are frequently advised that they should avoid probate at all costs and use transfer on death or “TOD” registrations to achieve that result. Although accounts titled in this fashion become the property of the designated beneficiary at the owner’s death, simply by the contract and beneficiary designation, this designation can derail an entire estate plan.

It is commonly believed that TOD registrations and avoiding probate will minimize or alleviate death taxes. However, accounts with TOD registrations are still subject to both Federal Estate tax and Pennsylvania and New Jersey Inheritance Taxes, so there are no tax savings. These assets are not controlled by the decedent’s will, yet they are still subject to death taxes and can conflict with instructions in the decedent’s will regarding payment of the taxes. Many institutions are now requiring not only an original death certificate to claim the account, but also proof of death tax payment, or a waiver.

An often-overlooked downside to the use of such accounts is that it can leave a person’s estate cash poor, meaning the funds the executor has control of may not be sufficient to provide for payment of the applicable death taxes, funeral and administration expenses and debts, or specific bequests. The unsuspecting designated beneficiary may be personally responsible for any taxes assessed by virtue of the title of the account, and if the funds have already been spent, there is an obvious problem. Further, if there are insufficient funds to pay a decedent’s creditors, a creditor may, in some circumstances, be able to pursue payment from the designated beneficiary.

TOD designations on the decedent’s accounts often result in an unfair distribution among intended beneficiaries. Often a client will create a separate bank account with TOD designations for each of their children. However, as funds are needed to pay for the person’s care and necessities during lifetime, it is difficult to keep in balance a number of joint accounts or accounts with beneficiary designations, and therefore equalizing shares among the various beneficiaries can become difficult, or impossible. Further, if the individual becomes incapacitated, a well-meaning agent or guardian may consume the accounts in a non-pro rata fashion, or may deliberately deplete the assets in one account to the detriment of a specific beneficiary, leading to litigation among your beneficiaries. A properly drawn will can solve all of these problems, by assuring that taxes, expenses and debts are paid before distribution, that specified amounts and percentages of assets are given to named individuals and that all of this is done regardless of the conversion of assets from one form into another.

If you are a Pennsylvania or New Jersey resident and someone advises you to “avoid probate,” please contact us for further advice. Questions about the manner in which assets are titled are integral to the estate planning process and changing the ownership can wreak havoc with a carefully crafted plan – with quite unintentional and unfavorable results!

The information contained in this publication should not be construed as legal or medical advice, is not a substitute for legal counsel or medical consultation, and should not be relied on as such.

About the Authors

Nina Stryker

Nina B. Stryker


Nina is a partner at Obermayer and Chair of the Trusts and Estates practice group. Her practice is devoted exclusively to estate and trust law, with an emphasis on estate related litigation....

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