Lawsuits Challenging a Beneficiary Designation, Pay-on-Death Designation, or a Transfer-on-Death Designation in Virginia
We recently wrote a post on common will contest scenarios in Virginia. That post discussed common bases for challenging a will in Virginia.
In addition to will contests, many estate disputes involve challenges to other estate-related documents such as beneficiary designations, pay-on-death designations (sometimes referred to as “POD”), or transfer-on-death designations (sometimes referred to as “TOD”). In Virginia, these types of challenges are increasingly common and can involve significant assets that pass entirely outside of probate. These transfers pass outside of probate and are not controlled by the will. However, they remain subject to legal challenges based on lack of capacity, fraud, undue influence, or forgery.
Basics of Beneficiary Designations, Pay-On-Death Designations, and Transfer-On-Death Designations
Beneficiary designations, pay-on-death designations, and transfer-on-death designations are separate from a person’s will. Typically, these documents will name a person or persons to whom the account will pass upon the designation-maker’s passing. These are quite common in the context of bank accounts, brokerage accounts, and retirement accounts (such as 401(k)s and IRAs). Additionally, life insurance policies will typically have a designated beneficiary to whom the policy proceeds should be paid upon the person’s passing.
As we wrote in a prior post about survivorship property, property owned with survivorship transfers outside of probate and is not controlled by the terms of a deceased person’s will. Similar to survivorship property, property that passes by a beneficiary designation, pay-on-death designation, or transfer-on-death designation passes outside of probate and is not controlled by the terms of a deceased person’s will. Virginia Code Section 64.2-618 provides, in part, “A transfer on death resulting from a registration in beneficiary form is effective by reason of the contract regarding the registration between the owner and the registering entity and this article, and is not testamentary.”
Sometimes a person’s estate can consist mainly of property that passes by beneficiary, pay-on-death, or transfer-on-death designation. This can sometimes be the case where the person’s main assets are bank accounts, brokerage accounts, retirement accounts such as 401(k)s and IRAs, real estate, or life insurance policies. Oftentimes the changes to a person’s beneficiary designation, pay-on-death designation, and transfer-on-death designation are made via forms provided by the bank, financial institution, life insurance company, etc.
If a person’s property passes by beneficiary, pay-on-death, or transfer-on-death designation, it is possible that they may have no probate assets, meaning that the person’s will does not actually control the disposition of any property.
With respect to real estate specifically, Virginia law permits owners of real property to execute transfer on death deeds, which operate to transfer real property to a designated person or persons upon the owner’s passing. These statutes are contained in the Uniform Real Property Transfer on Death Act found at Virginia Code Section 64.2-621, et seq. Virginia Code Section 64.2-624 provides “An individual may transfer property to one or more beneficiaries effective at the transferor's death by a transfer on death deed.”
Common Questions About Beneficiary Designation Challenges
Can you challenge beneficiary, pay-on-death, or transfer-on-death designations?
In Virginia, under certain circumstances, a person with standing can challenge beneficiary, pay-on-death, or transfer-on-death designations.
On what bases can a person challenge beneficiary, pay-on-death, or transfer-on-death designations?
Many of the common grounds for will contests can be grounds to challenge a beneficiary designation, pay-on-death designation, or transfer-on death designation.
As discussed in our prior post, these include:
- lack of capacity,
- fraud,
- undue influence, and
- forgery.
The same theories often apply, though elements and evidentiary burdens can differ from will contests due to the contractual/statutory nature of these transfers.
What happens to the assets while a beneficiary designation is being challenged?
One of the most common concerns in beneficiary designation disputes is that the named beneficiary will spend or transfer the assets before the lawsuit is resolved. In some cases, a party challenging a beneficiary designation, pay-on-death designation, or transfer-on-death designation may seek court intervention to preserve the assets during the litigation. This can include requesting that the court enter an injunction or other order to prevent the dissipation of the disputed assets while the case is pending. The potential availability of such relief depends on the specific facts and circumstances of each case.
Can a beneficiary designation be challenged after the account or policy has already been paid out?
In many cases, by the time a potential challenger becomes aware of a beneficiary designation, the financial institution, insurance company, or other entity holding the assets may have already distributed them to the named beneficiary. The fact that assets have already been paid out does not necessarily mean that a challenge is no longer possible. However, pursuing a claim after distribution can present additional practical and legal considerations, including the need to recover assets that may have already been spent or transferred. As with any estate dispute, the specific facts of the situation will determine the potentially available legal options for a beneficiary designation challenge.
Virginia Lawsuits Challenging Beneficiary, Pay-On-Death, or Transfer-On-Death Designations
Similar to a will contest, a lawsuit challenging these documents is very fact intensive and often focuses on the mental and physical condition of the person who executed the forms and the circumstances surrounding their execution. The person challenging the documents in such a lawsuit will typically engage in substantial discovery on those issues.
We wrote a prior post on the various methods of discovery available to litigants in circuit court lawsuits in Virginia (where these types of lawsuits are typically filed).
Whiteford’s estate dispute attorneys have represented clients in matters involving beneficiary designation challenges in Virginia circuit courts, including matters involving contested financial and bank account designations and life insurance policy disputes. This experience informs our approach to evaluating the strength of potential claims and defenses in these cases.
If you find yourself wanting to challenge a beneficiary designation, pay-on-death designation, and transfer-on-death designation, or if you find yourself having to defend an allegation that a beneficiary designation, pay-on-death designation, or transfer-on-death designation is invalid, it is wise to promptly consult with an experienced estate dispute lawyer so you can evaluate your potential options.
About Our Team
Whiteford offers sophisticated, experienced counsel on estate, trust, and fiduciary dispute matters, including will contests, challenges to beneficiary designations, and pay-on-death and transfer-on-death designation disputes.
When a will contest is on the horizon, the stakes are personal and the legal questions are complex. Whiteford’s Estates, Trusts, & Fiduciary Litigation Practice Team in Richmond, Virginia helps executors, trustees, heirs, and beneficiaries navigate these disputes, from early warning signs through trial. Our attorneys handle claims involving undue influence, fraud, lack of testamentary capacity, breach of fiduciary duty, and contested transfers of assets, as well as guardianship and conservatorship proceedings and will and trust interpretation.
Brett C. Herbert is a partner at Whiteford, Taylor & Preston LLP in Richmond, Virginia. Brett is a litigator and member of the Estates, Trusts, & Fiduciary Litigation Practice Team who represents clients in will contests, trust challenges, and breach of fiduciary duty claims involving executors and trustees, among other similar claims. He also handles guardianship and conservatorship proceedings, including both routine and contested matters. Brett has been recognized as a Virginia Super Lawyers "Rising Star" and named Best Lawyers in America® Ones to Watch in Trusts and Estates. Brett can be reached at BHerbert@whitefordlaw.com and (804) 977-1242.
Gregory S. Bean is a partner at Whiteford, Taylor & Preston LLP in Richmond, Virginia. Greg is a litigator and member of the Estates, Trusts, & Fiduciary Litigation Practice Team who represents clients in will contests, trust challenges, and breach of fiduciary duty claims involving executors and trustees, among other similar claims. His practice extends to will and trust interpretation, guardianship and conservatorship matters, and power of attorney disputes. Greg holds a Best Lawyers in America® distinction in Trusts and Estates. Greg can be reached at GBean@whitefordlaw.com and (804) 977-1241.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.