What is a Transfer on Death Account?
Transfer on death accounts can be created for investment accounts, including mutual funds, stocks, and bonds held in a brokerage account. Some states also recognize transfer on death documents to transfer ownership of property outside of probate proceedings. To receive investments after the account holder’s death, beneficiaries of a transfer on death account will need to provide an original death certificate of the account holder.
Advantages of Transfer on Death Accounts
Transfer on death accounts are easy to set up. Each company handles the process differently, but generally, transfer on death accounts are simple to create. You can start by contacting your investment firm to find out how to open a new transfer on death account or inquire about converting your existing accounts to transfer on death accounts.
No need for probate. Probate can be a lengthy and complicated process depending on state law and individual circumstances. A transfer on death account provides the option to bypass probate and transfer the account directly to beneficiaries of the transfer on death account even if the account holder has a will or revocable trust stating otherwise. For this reason, you should coordinate your will or trust with the beneficiaries you have named for your transfer on death accounts.
Joint transfer on death accounts. Multiple owners can maintain a joint account with rights of survivorship and have an undivided interest in a transfer on death account. Upon your death, your share of the investments is divided equally among the surviving owners. There can also be joint ownership according to the joint ownership based on your objectives for the account.
Disadvantages of Transfer on Death Accounts
Transfer on death accounts are not suitable for everyone. In some cases, beneficiaries may be excluded. For joint transfer on death accounts for married couples, after one spouse’s death, the surviving spouse will have full control to change the beneficiaries. If you and your spouse are in a second marriage and have children from other marriages, the surviving spouse may exclude the children of the deceased first spouse.
There are also special rules regarding minor children who own transfer on death accounts. Naming minor children, such as grandchildren, as beneficiaries of your accounts can lead to unintended consequences if the grandchildren are still minors at the time of your death. Minor beneficiaries will have no legal authority to receive the investments under the state’s law. Instead, a guardianship must be established to oversee the management of the assets. When the minor reaches the age of eighteen, they will have full access to the transfer on death investments without any conditions.
If you have a transfer on death account, be sure to update your beneficiaries periodically. This is especially important if one of the beneficiaries you have named passes away before you or if the circumstances of the beneficiaries change. Remember that if you have a revocable trust and have named it as a beneficiary for your transfer on death accounts, every time you change the beneficiaries of the trust, you will also change the beneficiaries for the transfer on death accounts without needing to change the designation you have on file with the investment company.
Frequently Asked Questions (FAQs)
What is the difference between a Payable on Death (POD) account and a Transfer on Death (TOD) account?
A Payable on Death (POD) account is most commonly used with bank accounts such as checking or savings accounts. It can also be used with certificates of deposit (CDs). A Transfer on Death (TOD) account is more commonly used for investment accounts and brokerage accounts.
Does
I need a will if I have a transfer-on-death account?
A transfer-on-death account names a beneficiary for a specific investment account, but it does not cover your other assets, such as your checking account, car, or other personal property. If you have any of these assets, you will need to write a will to ensure they go to the person you desire. You also need a will to distribute specific bequests, appoint guardians for minor children, or appoint a manager to handle your affairs, such as taxes and debts, after your death.
Source: https://www.thebalancemoney.com/using-transfer-on-death-accounts-to-avoid-probate-3505416
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