Expectancy Interest in Transfer on Death Accounts
Q: My father is an assisted living facility and while going through some of his papers, I found that there is a bank account worth about $100,000 in his sole name that I am listed as a transfer on death (TOD) beneficiary. I have 3 other siblings that are not listed as beneficiary on this account.
The RuleThe rule is that while your father is alive you only have an expectancy interest in this bank account. You have no present interest in this bank account and cannot withdraw funds for your personal use. If you are your father's agent under his durable power of attorney you have the right to withdraw funds for solely for his use and benefit. The account is solely your father's until his death and you have no personal right to the funds during his lifetime unless he makes a gift to you.
What this means is that if you remove funds from this bank account without your father's permission or with your durable power of attorney before his death for your own personal use, you would destroy the expectancy interest. Destroying the expectancy interest essentially means cancelling the TOD designation on the account and losing your right to inherit the account at your father's death.
What's NextIf you have siblings or there are other beneficiaries of your father's estate, they could contest your removal of funds during your father's lifetime in an accounting or turnover proceeding in the Surrogate's Court. At the end of the proceeding after spending significant money to defend yourself, you could lose the right to the monies remaining in the account at your father's death and the monies you took despite the fact that you were named as TOD beneficiary on the account. You could then be ordered by the Court to return these funds to the estate with interest of up to 9% from the date the funds were removed for distribution in accordance with your father's last will and testament.
Do not make the mistake that many people make of assuming that since you are going to inherit the account anyway, you can take some of the money out during your father's lifetime. This could have unintended consequences and cost you a lot more money in legal fees and interest if your removal of the funds is contested after your father's death by the other beneficiaries of his estate.