“Transfer on death (TOD) accounts can keep your estate planning intact, while keeping your beneficiaries out of court. If you’re among the 57% of adults who don’t currently have a will or trust, your family is likely headed to probate court.”
Even estates with wills often do go to probate court. This is not a major issue in some states and an expensive headache in others. By changing some accounts to transfer on death (TOD), you can avoid some assets going through probate, says Yahoo! Finance in the article “Transfer on Death (TOD) Accounts for Estate Planning.”
Here’s how it works:
A TOD account automatically transfers the assets to a named beneficiary, when the account holder dies. Let’s say you have a savings account with $100,000 in it. Your son is the beneficiary for the TOD account. When you die, the account’s assets transfer to him.
A more formal definition: a TOD is a provision of an account that allows the assets to pass directly to an intended beneficiary, the equivalent of a beneficiary designation. Note that the laws that govern estate planning vary from state to state, but most banks, investment accounts and even real estate deeds can become TOD accounts. If you own part of a TOD property, only your ownership share transfers.
TOD account holders can name multiple beneficiaries and split up assets any way they wish. You can open a TOD account to be split between two children, for instance, and they’ll each receive 50% of the holdings, when you pass.
One thing to bear in mind: the beneficiaries have no right or access to the TOD account, while the owner is living. The beneficiaries can change at any time, as long as the TOD account owner is mentally competent. Just as assets in a will can’t be accessed by heirs until you die, beneficiaries on a TOD account have no rights or access to a TOD account, until the original owner dies.
Simplicity is one reason why people like to use the TOD account. When you have a properly prepared will and estate plan, the process is far easier for your family members and beneficiaries. The will includes an executor, who is the person who takes care of distributing your assets and a guardian to take care of any minor children. Absent a will, the probate court will determine who the next of kin is and distribute your property, according to the laws of your state.
A TOD account usually requires only that a death certificate be sent to an agent at the account’s bank or brokerage house. The account is then re-registered in the beneficiary’s name.
Whatever is in your will does not impact the TOD account. If your will instructs your executor to give all of your money to your sister, but the TOD account names your brother as a beneficiary, any money in the account is going to your brother. Your sister will get any other assets.
But, caution! Using TOD accounts also have many pitfalls. They are the bare minimum to avoid probate. If your plans change and you don’t update each and every account, your assets may go to people you no longer intend. It’s far better to have a comprehensive estate plan created by an attorney.
Speak with an estate planning attorney about how a TOD account might be useful for your purposes.
Reference: Yahoo! Finance (June 26, 2019) “Transfer on Death (TOD) Accounts for Estate Planning”