Although avoiding probate is probably overrated, there are several legal tools available to transfer wealth at death that don’t require much, if any, lawyer handholding and don’t require a probate proceeding. These are generally referred to as nonprobate transfers and included here are pay-on-death accounts.

When you own a bank, savings, brokerage or mutual fund account, the law allows you to name a pay-on-death beneficiary. If you name such a beneficiary, when you die, your interest in the account is transferred to the beneficiary. While you’re alive (and still have a sufficient number of functioning brain cells), you can remove or change the pay-on-death designation, or close the account, without the beneficiary’s consent.

With pay-on-death accounts and other nonprobate transfers, you need to remember you have established a pay-on-death arrangement. Otherwise, even though your wealth transfer intentions might have changed, unless you take action to remove the pay-on-death designation, it will remain in place.

A case recently decided by the Colorado Court of Appeals demonstrated the risk this can present.

In this case, a man named Michael Arnold had a romantic relationship with a woman named Annette English. During the relationship, Arnold named English as the pay-on-death beneficiary for a bank account at First Colorado National Bank. The relationship ended after six years, but Arnold never revoked the pay-on-death instruction.

Instead, when they broke up, Arnold and English entered into a settlement agreement wherein each released the other from all claims, using broadly stated language.

However, the settlement agreement made no mention of the pay-on-death designation involving the First Colorado National Bank account.

Then, 10 years after the settlement agreement was signed and Arnold and English had gone their separate ways, Arnold died and English claimed the money in the account — about $165,000.

Arnold’s daughter, as personal representative and primary devisee named in his will, contested English’s claim.

She argued that the settlement agreement had terminated the pay-on-death designation and the money in the First Colorado National Bank account was therefore an asset of Arnold’s estate, meaning the money would go to her under the terms of Arnold’s will.

The trial court agreed with the daughter. The Court of Appeals, however, did not.

The Court of Appeals concluded that, although English had an “expectancy” resulting from the pay-on-death designation, she did not have an actual claim that could have been released.

She would only have such a claim after Arnold died, and the language in the settlement agreement, although very broad, didn’t terminate English’s expectancy interest and didn’t cover claims that would arise in the future.

So, the Court of Appeals ruled that English gets the money.

It’s useful at this point to note that if English and Arnold had been married and their relationship ended with a divorce rather than a settlement agreement, the divorce would have terminated English’s status as a pay-on-death beneficiary.

Colorado has a statute stating that divorce terminates all rights to inherit from a former spouse, including a right coming from a pay-on-death designation.

Jim Flynn is a business columnist. He is with the Colorado Springs firm Flynn & Wright. Contact him at moneylaw@jtflynn.com.