Yes, and They Can Avoid Probate
Yes. Massachusetts recognizes arrangements that allow certain bank and investment accounts to pass directly to named beneficiaries at death. Bank accounts commonly use the term payable on death, or POD, while brokerage accounts often use transfer on death, or TOD. When the designation is valid and the beneficiary survives as required, the account can generally pass without probate. That can be useful, but it also means the account may follow a different set of instructions from the ones in your will.
Wondering whether a beneficiary designation is enough, or whether you need a trust? I walk through this in my free online webinar, Wills vs. Trusts. It runs most Wednesday evenings, about 45 minutes plus time for questions, and you can watch from home. See the next date and save your seat.
Set It Up Through the Institution
You establish the designation through the financial institution’s process. Writing someone’s name in your estate planning notes or telling your adviser whom you want to receive the money is not necessarily enough. The institution needs to accept and record the arrangement under its requirements. Ask for confirmation showing the beneficiaries and their shares, then keep that information with your planning records. A blank form you intended to complete does not accomplish the transfer. See Massachusetts recognition of nonprobate transfers.
A Beneficiary Is Not a Joint Owner
Naming a beneficiary is different from adding a joint owner. Under an ordinary revocable POD or TOD arrangement, the beneficiary does not become a current owner simply by being named. You generally retain control during life, including the ability to spend the money or change the designation under the account’s rules. For securities registered in beneficiary form, Massachusetts law expressly provides that the designation does not affect ownership until death. See Massachusetts TOD ownership provisions.
Your Will Does Not Override the Designation
The part families sometimes miss is that the will generally does not redirect a valid beneficiary designation. Suppose your will divides your estate equally among three children, but a substantial brokerage account names only your oldest child. That account may pass directly to the oldest child instead of becoming part of the equal division. An expectation that the child will “share it with the others” can create unnecessary legal, tax, and family problems. If you intend three people to receive the money, the arrangement should say so.
Name Backups
Backups deserve attention. Find out what the institution’s rules provide if a beneficiary dies before you, and whether you can name contingent beneficiaries or specify how descendants should inherit. Do not assume one bank’s form operates the same way as another’s. A joint account can raise additional questions about whether a beneficiary designation takes effect only after the last owner dies. Those details are worth settling while everyone involved is available to answer questions.
Not sure how your accounts fit with your will or trust? The webinar covers wills, trusts, keeping your family out of probate, and protecting your home and savings from long-term care costs, in plain English. Save your seat for the next one.
It Can Bypass the Protection in Your Trust
A direct designation may also work against protection you deliberately built into a trust. If your trust keeps a child’s inheritance under management, but the account pays that child outright, the account may bypass those safeguards. Naming a minor directly can create a different administration problem because a child cannot simply handle the account as an adult would. Depending on the plan and the institution’s rules, naming a properly identified trust may be more appropriate than naming the individual.
Avoiding Probate Is Not Avoiding Estate Tax
Avoiding probate does not necessarily avoid estate tax or every potential claim. Property passing by beneficiary designation can still be included in the Massachusetts estate tax calculation. The overall plan also needs to account for money required to pay administration expenses and taxes. Sending every available dollar directly to beneficiaries may leave the person handling the estate with obligations but little cash under their control. See Massachusetts estate tax guide.
No Help If You Become Incapacitated
These designations also do not provide someone with authority to manage your money if you become incapacitated. A person named to receive an account at death generally cannot pay your bills from it while you are living merely because they are the beneficiary. A durable power of attorney or properly funded trust may address that separate need. It is easy to feel that an account is “taken care of” when only the transfer at death has been addressed.
Review Designations With the Rest of the Plan
POD and TOD arrangements work best when they are part of the same conversation as your will, trust, and financial needs. Bring the current designations to an estate planning review instead of relying on memory. We can then compare where the accounts will actually go with what you intend the family to receive. A simple form can be useful, provided its instructions match the rest of the plan.
Your Next Step: A Free Online Webinar
Before you rely on beneficiary designations alone, the best next step is my free online webinar, Wills vs. Trusts. In about 45 minutes, plus time for your questions, I cover the real difference between a will and a trust, how to keep your family out of Massachusetts probate court, and how to protect your home and savings from long-term care costs. It runs most Wednesday evenings, and you can join from your phone or computer. See the next date and save your seat.
