Pay on Death Clause

Dear Len & Rosie,

My father died recently and the court made me the executor of his estate. I am the last survivor of his four children. My mother died many years ago. I thought I would inherit the entire estate, after Dad’s credit cards were paid off.

Unfortunately, on one investment Dad had a pay-on-death clause that says it’s supposed to go to some woman I’ve never heard of! Dad liked the ladies, especially the loose ones. I want to keep this floozy from getting Dad’s money, but the lawyer says the pay-on-death clause precludes probate, so there’s nothing I can do. He could not explain to me why, but is he right?

Ray

Dear Ray,

Your lawyer is correct. It is not uncommon for bonds, insurance policies, pension plans, and bank accounts to have pay-on-death beneficiaries. Pay-on-death accounts are similar to assets held in joint tenancy, life estates, and trusts, in that none of these assets are subject to probate. Because the pay-on-death account is not in your father’s probate estate, you, as executor, have no jurisdiction over that account.

At the moment of your father’s death, the pay-on-death account automatically became the property of your father’s friend. All she has to do is to have the financial institution retitle the account in her name. She can do it herself by of presenting a certified original death certificate to the financial institution and requesting the transfer.

If, however, the asset is stock in a corporation, a mutual fund or brokerage account, it is a little bit more complicated, because corporation stock transfer agents require letters of instruction, signature guarantees, and affidavits of domicile, before they will retitle assets. If your father’s pay-on-death investment is one of those, then his friend should ask an attorney or broker for help.

Of course, that’s her problem, not yours.

There are provisions in the law for the executor to pull such non-estate property into a probate estate, but you would have to prove that the pay-on-death designation resulted from the friend’s wrongdoing, such as fraud or undue influence.

Hopefully your lawyer explored that possibility. But it’s a long shot at best. To prove undue influence you have to show that the girlfriend so manipulated your father as to destroy his free will and bend him to her influence. If she managed to pull that off, then why did she stop at just one investment?

It is more likely that your father added the pay-on-death designation because he wanted his friend to get that one asset when he died. Just because you feel this is unfair is not enough to keep her from getting the money. You should just be glad your father did not put his girlfriend’s name on all of his property. She could have wound up with everything.

Len & Rosie

Sheltering Your Home from Potential Medi-Cal Estate Claims

 

Dear Len & Rosie,

I am 68 and I am married for the second time. My house, where my husband and I live, is still in my name, and there are no mortgages on it. My trust is written such that, after my death, my husband will have the right to live in my home until he dies, after which it will be divided amongst my three children. I would like to put the property in my children’s names now, so that if I should enter a nursing home, the government can’t take the home as payment. But I also want to keep control over the property as long as I can. What should I do?

Lorena

Dear Lorena,

You don’t have to do anything with your home to qualify for Medi-Cal. You are allowed to own your home and still receive Medi-Cal nursing home benefits. There is also no Medi-Cal estate claim for any benefits paid on you or your husband’s behalf until both of you have died. Sheltering your home is really for the benefit of your children, not you.

You could give the house to your children now, while retaining a life estate in your home for yourself and your husband, to last until the survivor between you dies. This means that you and your husband will be able to live in the house for as long as you both live. After you both die, your children will own the property.

But you will lose some of your control over the property. You would not be able to sell it or encumber it with a mortgage without the consent of your children and your husband. More importantly, if your children fail to pay their taxes or get sued, their creditors can record a judgment lien against your home. If one of your children dies before you, then his or her share of the home will pass to his or her heirs through probate. 

The best way to protect a home from potential Medi-Cal estate claims is to shelter it within an irrevocable trust, which will allow you greater flexibility in deciding how the trust will be distributed upon your death. But if you create an irrevocable trust for your home, you won’t be in charge any longer, because you cannot be the trustee. Also, your rights with respect to the trust would be severely limited, because otherwise your home would be subject to a Medi-Cal claim. You wouldn’t have much more than a right to reside in your own home.

It is important to understand that giving your home away, either outright to your children, or within an irrevocable trust is usually a bad idea if you are not already on Medi-Cal benefits or suffer from an ailment that is very likely to put you into a nursing home. Don’t do this just because you fear that you may need long term care some day. If you are healthy today but concerned about future medical costs, you could amend your trust and sign a new durable power of attorney and give permission to your children today to do this sort of planning for you in the future if you ever become incapacitated.

Len & Rosie