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Most people assume that their wills control where their assets go after they die. Increasingly, however, beneficiary designations are controlling how assets are distributed – sometimes with unexpected results.

Beneficiary designation forms are completed not only for life insurance and retirement plan assets, but also with respect to many bank and brokerage accounts – sometimes without the full knowledge of the account owner. These bank and brokerage accounts with built-in beneficiary designations are sometimes called payable-on-death (POD) or transfer-on-death (TOD) accounts. With a POD or TOD account, there is no transfer of ownership during lifetime, with the transfer to the named beneficiary occurring at the death of the account owner.

It is quite often the case that people are not aware what kind of account they are getting when opening a new account at a bank or with a stockbroker. The question is asked: “Would you like to put someone else’s name on the account?” This can mean a variety of things. However, how the account is titled can mean a big difference when determining how the account is treated during the estate administration process. For example, if an oldest child is named as the death beneficiary of a POD or TOD account, the entire amount in the account will be transferred to the oldest child at the death of the account owner, with the other children inheriting nothing from the account. Meanwhile, the account owner may have thought that the oldest child merely had check-writing authority. For obvious reasons, this can result in discord among the account owner’s children.

Titling all accounts in POD or TOD format can leave no assets in an estate to fulfill bequests to individuals or charities or to pay inheritance taxes – a situation that is occurring more and more frequently. In addition, POD and TOD accounts typically are "frozen" at the death of the account owner, with no transfer occurring until the Pennsylvania Department of Revenue is satisfied that appropriate inheritance taxes will be paid. Thus, it can take longer to access POD and TOD accounts compared to regular probate assets.

While in some cases there are very good reasons to use POD and TOD accounts, too often the designation is used carelessly with sometimes unfortunate results. Furthermore, how an account is titled is information that banks and stockbrokers are prohibited from sharing with those who are not the account owners, making this information difficult to access – especially after the death of the account owner. The situation is made worse, because quite often, employees working for these institutions are not always familiar with the variations in the different types of accounts or the effects of making certain designations.

The moral of the story? It is extremely important for you to know how your various accounts are titled. In addition, you should be reviewing your account designations on a regular basis to make sure that the death beneficiaries named have remained current with changing circumstances. Your will does not control assets with beneficiary designations, so merely updating your will cannot fix improperly titled assets.

David Watts is a retired attorney at McNees Wallace & Nurick, LLC, based in Harrisburg, Pennsylvania. David is also the chair of the HACC Foundation Planned Giving Committee.