What is the outcome when the trust and transfer on death instructions on accounts are different?

Ideally, a family living trust should be funded with all the assets, so they all pass to the beneficiaries through the trust. Of course, this doesn’t always happen.  More often than we would like to see, individuals who have set up trusts still have banking and investment accounts with old beneficiary designations on them that are inconsistent with the terms of the family trust. 

To illustrate, let’s say that Ashley sets up a trust naming her three daughters as equal beneficiaries to her trust estate.  Before setting up her trust, Ashley had a checking account on which she named only one of her daughters, Diane, as a Transfer on Death (ToD) beneficiary.  Following Ashley’s death, a dispute arises among the three daughters regarding the checking account, as Diane claims that she is the sole beneficiary of the account, while her two sisters claim that the account should be equally shared among the three of them per the terms of the trust.  Whose argument prevails here? 

Probate Code § 5302 provides that a non-probate transfer (e.g., a ToD designation), can fail if there is clear and convincing evidence that the deceased account owner intended a different disposition of funds on deposit.  Case law has developed over the last several years, establishing that a trust may establish clear and convincing evidence of a deceased’s intent for the purposes of § 5302.  

In our hypothetical, since Ashley’s trust provided for an even division of her trust assets, and since the trust was created after Ashley first designated Diane as a beneficiary, there is a real chance that Diane’s sisters could prevail. 

Most often, these situations only involve small accounts that don’t upset the other beneficiaries and cause a problem, but at times they involve large accounts that cause lawsuits that take significant resources to resolve. While these types of cases will always be decided on the facts unique to that particular case, we highly recommend contacting us if you find yourself in a similar situation, give the five-star attorneys at Max Alavi, Attorney at Law, APC, a call today.