Probate is the court-supervised process of authenticating a last will and testament of a deceased individual. The probate process involves determining the value of the deceased individual’s assets, paying any owed taxes on their behalf, and distributing the remainder of the estate to the indicated beneficiaries. In recent years, however, transfer on death accounts (TOD) have become a common tool used to avoid the probate process. As with any legal tool, you should thoroughly understand its ins and outs before utilizing it for yourself.
Using Transfer on Death Accounts to Bypass Probate
Transfer on death accounts can help avoid probate because they transfer the account automatically to indicated beneficiaries when the owner passes away. The accounts can be set up as investment accounts and may include mutual funds, stocks, bonds and an array of other financial assets. Overall, the beneficiaries of the account will need to access the investments of the descendants by providing a death certificate of the owner to the company. Utilizing transfer-on-death accounts does not require probate since the process is operated by specific legislation rather than the probate court.
Creating a Transfer on Death Account
Transfer-on-Death accounts can be drafted relatively quickly. To create an account, request the “Transfer on Death Beneficiary Designation Form” from the respective institution. From here you can fill out the beneficiary designation form and carefully read through the terms and conditions to ensure that you are aware of how the transfer of assets will take place. A clear designation of the beneficiaries will smooth the transfer of brokerage assets at the time of death. Further, the transfer-on-death account is a straightforward way to transfer the non-retirement holdings to your beneficiaries without a fee. It is recommended for an account holder whose financial assets are relatively simple and straightforward.
It’s important to keep in mind that a TOD account supersedes a will or trust. In other words, your assets will pass to the TOD beneficiaries regardless of what your trust or will state. For example, if your trust appoints all three of your children as the beneficiaries but only one of your children is appointed in the TOD account, that child alone will receive the assets and will not be obligated to share the assets with anyone. Therefore, to avoid confusion, it is highly recommended to coordinate the beneficiaries appointed in your trust and will with the ones designated in your TOD account.
Joint TOD Accounts
Another pro regarding TOD accounts is that multiple owners can maintain a joint account that will pass to the appointed beneficiaries after all the owners pass away. However, this may become a tricky situation if you are remarried in a second marriage with children from the first. It is recommended to consult with an attorney regarding this as different situations can arise regarding the beneficiaries who will inherit the assets. When the account holder passes away, the surviving spouse will typically gain control of the TOD account and will be able to make changes. If the account holder is remarried, the surviving spouse may be able to disinherit the children therefore possibly arising complications as a result.
Make Sure to Keep Your Beneficiaries Updated
It’s also important to note that just like the beneficiaries in an estate plan, TOD beneficiaries need to be updated as your life changes. This is especially important if a beneficiary that you’ve naved passes away before you, or no longer is someone who you’d want your assets to be transferred to. If you have a revocable living trust and also name it as the beneficiary of a TOD account, then each time you amend the beneficiaries the trust you will also have to change the TOD beneficiaries without having to change the beneficiary designation you have filed with your bank.
Can Minors Be Beneficiaries?
On a final note, you should never name a minor as a beneficiary of a TOD account. Under current legislation, minor beneficiaries do not have the legal authority necessary to receive investments in a TOD account. Instead, you should establish a court-supervised guardianship for the minor until he or she reaches 18 years of age and is able to have full access to the investments without any legal complications.
Consult With a Trusted Attorney
While TOD accounts are certainly an effective tool for some individuals, they may not be the best choice for others. If you or a loved one are looking to leave assets to loved ones after you pass away, consult with a licensed estate planning attorney in NY who can guide you through the rough legal waters of preparing a comprehensive estate plan and will help make sure that your assets are properly dealt with.