12/18/2014

Will Substitutes

Will substitutes are legal instruments that transfer property to beneficiaries at the donor's death without benefit of the probate process.  Probate is the court-supervised procedure to legally transfer ownership of estate assets to beneficiaries, whether named in a will or passed on according to the state intestacy laws.  Will substitutes include payable on death (POD) or transfer on death (TOD) designations, accounts that pass by beneficiary designation such as life insurance policies and retirement accounts, life estates and future interests, joint tenancies, and living trusts.

Sections 64.2-600 through 64.2-638 of the Virginia Code govern the assets that can pass to named beneficiaries without need for probate, and include the following types of assets:

  • insurance policies
  • bonds
  • promissory notes
  • certificated or uncertificated securities
  • custodial account
  • pay on death designated bank account
  • transfer on death securities account
  • deposit agreement
  • pension plan
  • individual retirement plan
  • trust
  • deed of gift
  • transfer on death deed
  • marital property agreement,

The maker of a will substitute has complete control over it, he can revoke the will substitute, or name or change beneficiaries at any time before death.  Upon death, the designated beneficiary becomes the new owner of the property.  The transfers occur automatically at the death of the donor, thus the transfer does not require the approval of the probate process.  Because of the simplicity of creating a will substitute, most people have several will substitutes, although they may not have a will.

A common will substitute is a property interest with a right of survival, including joint tenants or tenants by the entireties.  Joint tenancy with right of survivorship can be held by any group of two or more owners, and upon the death of one tenant, the property ownership passes to the remaining tenant(s).  Each owner has an undivided interest in the property, and any disposal of the property requires the consent of all owners. Only the last owner has the right to pass the property by way of a will.  Tenants by the entireties is the same but applies only to married couples.

When a payable-on-death (POD) designation is signed, the beneficiary of the contract is designated on the form.  When the POD owner dies, the beneficiary presents the death certificate to the other party, who then transfers ownership to the beneficiary. POD designations apply to bank accounts, sometimes also known as Totten Trust accounts.  Transfer on Death (TOD) designations apply to investment accounts but work the same way as a POD.   POD and TOD accounts can be reached by creditors of the decedent’s estate.

Virginia recently enacted legislation that allows a property owner to record a revocable transfer on death deed, naming primary and contingent beneficiaries who will become owners of the property at the death of the current owner. 

Another popular nonprobate instrument is the living trust, also known as a revocable trust or inter vivos trust, which is created by the grantor, and managed by a trustee for the benefit of one or more beneficiaries. The grantor of the trust transfers his property to the trust while he is still alive. Often, the grantor also serves as a trustee, but when the grantor dies, a successor trustee, named in the trust document, takes over. The trust has legal title to the property and the beneficiaries have equitable or beneficial title. The successor trustee distributes the property according to the trust documents without the need for probate or court supervision.


SWICKERLAW PLLC