A designated beneficiary on a Transfer on Death (TOD) account has only an expectancy interest in the account and cannot use the funds in the account until the death of the account holder. With no present interest the designated beneficiary cannot withdraw funds for his or her personal use during the account holder’s lifetime. Even if the designated beneficiary is also the agent under a durable power of attorney for the account holder, withdrawals must be solely for the account holder’s benefit.
Many people believe since they will inherit the money anyway, they have some right to it. They are wrong. In fact, if the designated beneficiary were to remove funds from the bank account without the account holder’s permission or as agent under durable power of attorney for his or her own personal use, it may destroy the expectancy interest. Destroying the expectancy interest essentially means cancelling the TOD designation on the account and losing the right to inherit the account.
Suppose Dad is in a nursing home. Son is named as designated TOD beneficiary on dad’s Chase bank account containing $100,000.00 and is dad’s agent under a durable power of attorney. Son takes out $50,000.00 because he figures he is going to inherit it anyway. But dad has two daughters as well and are named beneficiaries of his estate. They could contest any removal of funds during the dad’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 himself, the son could lose the right to the monies remaining in the account at dad’s death and the monies taken – despite the fact that son was named as TOD beneficiary on the account. Son 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 his 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 the account holder’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 the account holder’s death.