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How Does a “Transfer on Death” Work for Securities?

There are a number of estate planning methods to transfer assets outside of the normal probate process. For instance, the California Uniform TOD Security Registration Act allows the owner of securities, such as corporate stocks, to designate a beneficiary who assumes ownership upon his or her death. This transfer occurs automatically at the original owner’s death, so the securities do not pass under the terms of their last will and testament.

Courts Reject Son’s Efforts to “Transfer” Mother’s Mutual Funds to Him

In order for the TOD Securities Registration Act to take effect, it is essential to clearly designate the desired securities as “transfer on death,” “pay on death,” “TOD,” or “POD.” Failure to include such a designation may lead a court to determine the Act does not apply, in which case the security will pass under the decedent’s will, trust, or other estate planning device.

A recent California case illustrates such a situation. In this case, a woman owned six mutual fund accounts. Each account was initially titled by the woman “as trustee for the benefit of” her son. But after the woman passed away, the executor of her estate found the original declarations of trust for three of the accounts, which contained handwritten notes from the decedent indicating that she had revoked the trust with respect to each account.

The son argued that he was entitled to ownership of all six accounts under the Uniform TOD Securities Registration Act. The executor, who was also the successor trustee of the mother’s revocable living trust, argued that the accounts passed to the trust under the terms of the will. A California probate court judge ultimately decided that the three accounts containing the handwritten revocation notes did, in fact, belong to the trust. The other three accounts passed to the son.

The son appealed—he still wanted all six accounts—but the California Fifth District Court of Appeal upheld the probate court’s decision. The son argued the original designation of “as trustee for the benefit of” on the three disputed accounts constituted a transfer-on-death registration. The court disagreed, noting California law only recognizes the “transfer on death” and “pay on death” designations as controlling.

As a matter of law, the court said the mother held each stock account as the trustee of a separate revocable trust that she was free to amend or revoke at any time prior to her death. The terms of the trust did not specify a particular method of revocation, the court observed, therefore the handwritten annotations were sufficient to revoke the trusts with respect to the three disputed accounts.

Get Help From a California Estate Planning Attorney

It is not unusual for a person to change their estate plan multiple times during their lifetime. The important thing is to make sure your amended plan is expressed clearly and unambiguously so as to avoid unnecessary confusion after your death. An experienced San Diego estate planning lawyer can advise you on the best way to revise your existing will, trust, or other important documents. Contact the Law Office of Scott C. Soady if you would like to speak with an estate planning attorney today.

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