Can TOD Accounts Bypass Probate? Lessons from Succession of Schimek

In Succession of Schimek, the Louisiana Court of Appeal, Fourth Circuit, examined a dispute over the validity of Transfer on Death (TOD) beneficiary designations for securities accounts. The case arose after the death of Dr. Robert Alfred Schimek, Sr., a physician and businessman, who had established TOD designations for brokerage accounts held with Vanguard and TD Ameritrade. Dr. Schimek’s will, executed in 2013, named his wife, Denise Villere Schimek, and his son, Robert Jr., as 50/50 beneficiaries of the Vanguard account proceeds upon his death.

Dr. Schimek passed away in November 2018, and the co-executors of his estate, including his wife and another son, Ray Alan Schimek, contested the TOD designations. They filed a motion for declaratory judgment, arguing that the TOD transfers violated Louisiana law, which requires donations to comply with strict formalities.

Trial Court Proceedings

The trial court reviewed the terms of the Vanguard TOD agreement, which included a choice-of-law provision stipulating that Pennsylvania law governed the contract. The court found that Pennsylvania law, unlike Louisiana law, expressly permits TOD designations for securities accounts.

The co-executors argued that Louisiana law should apply, citing the state’s prohibition against informal donations of property. They further claimed that the Vanguard TOD designation conflicted with Louisiana public policy. In response, Robert Jr. filed a cross-motion for summary judgment, asserting that the Vanguard TOD agreement was a valid contractual arrangement under Pennsylvania law and that the funds were properly distributed.

The trial court ruled in favor of Robert Jr., granting his cross-motion for summary judgment. The court held that Pennsylvania law applied to the Vanguard contract and validated the TOD designations.

Appeal and Court Ruling

On appeal, the co-executors challenged the trial court’s decision, arguing that Louisiana law should govern the TOD designation and that the agreement violated Louisiana’s public policy. They also contended that Robert Jr. lacked standing to enforce the TOD agreement as he was not a party to the contract.

The appellate court affirmed the trial court’s ruling. Key points from the court's analysis included:

1. Standing: The court found that Robert Jr. had standing as a third-party beneficiary of the Vanguard contract. Under Louisiana law, a third-party beneficiary may enforce a contract if the benefit is clearly intended.

2. Choice-of-Law Provision: The court upheld the application of Pennsylvania law, citing the explicit choice-of-law clause in the Vanguard contract. It found no compelling reason to override the agreement, as the contract did not violate Louisiana’s public policy.

3. Public Policy Considerations: While Louisiana law has not explicitly adopted TOD statutes for securities accounts, the court noted that similar contractual arrangements, such as payable-on-death (POD) accounts and life insurance beneficiary designations, are permitted. It concluded that the TOD designation did not conflict with Louisiana’s public policy.

4. Contractual Validity: The court emphasized that the Vanguard TOD agreement complied with Pennsylvania’s Uniform Transfer on Death Security Registration Act, which allows securities account holders to transfer assets to designated beneficiaries outside of probate.

Conclusion

The Louisiana Court of Appeal’s decision in Succession of Schimek reaffirms the enforceability of TOD designations when governed by valid contractual agreements and choice-of-law provisions. The ruling underscores the importance of carefully drafting estate planning documents and understanding how state laws interact with multi-jurisdictional contracts.

Plan for the Future with Confidence

Disputes like those in Succession of Schimek highlight the complexities of estate planning and succession law. At Whitcomb Selinsky PC, our attorneys specialize in navigating the intricate legal challenges that arise in these situations. From creating clear estate plans to resolving disputes, we'll help you keep your legacy protected. Visit our estate planning page to learn more about how we can assist you.