How to Properly Use Transfer on Death Accounts to Avoid Probate

When it comes to estate planning, there are dozens of ways to go about it. You could use a will or a trust, but there are many types of trusts to consider and it can quickly get confusing. Some people use life insurance or retirement accounts. Many people like using transfer on death (TOD) accounts because they are cheap and easy to use. Best of all, they can also be used to help avoid probate.

What exactly is a TOD account? It is a type of financial account that allows the account owner to designate one or more beneficiaries who will automatically inherit the account’s assets upon the owner’s death. TOD accounts are commonly used for investment accounts, brokerage accounts, and sometimes bank accounts.

Assets transfer directly to the named beneficiaries, bypassing the probate process, which can be lengthy and costly. The account owner retains full control over the account during their lifetime, including making changes to beneficiaries or withdrawing funds.

As far as taxes go, the transfer occurs only after the account holder’s death. This means there are no tax implications during the holder’s lifetime related to the TOD designation.

TODs are easy to use. Beneficiaries are named directly on the account, usually through a form provided by the financial institution. The TOD designation takes precedence over instructions in a will, ensuring that the named beneficiaries receive the assets as directed. This makes a TOD attractive for those who have relatively modest balances and estates. TODs are also good for keeping assets private.

A TOD also can be used to ensure the beneficiary has cash on hand for everyday needs after the owner passes away. So as you can see, a TOD has many benefits. TOD accounts simplify the transfer of assets and minimizes legal and administrative hurdles for beneficiaries. They can also be updated easily if life circumstances change.

However, some people have multiple accounts, which can be complicated and lead to unintended consequences. It’s important that the estate executor is aware of all the TODs. The accounts could become lost property if the owner passes away and the beneficiaries don’t claim them because they don’t know about them.

The owner also needs to remember the TODs when creating or updating the rest of the estate plan. TODs do not have contingencies, so they cannot update automatically on their own. If the owner forgets to update them, a beneficiary could end up receiving more or less wealth than intended.

Seek Legal Help

When done properly, a transfer on death account can be helpful in avoiding probate. However, there needs to be good record keeping and communication to avoid disputes.

Dealing with a deceased loved one’s estate can be a stressful experience. Get the help you need from Fort Lauderdale probate litigation lawyer Edward J. Jennings, P.A. We’re ready to help resolve your matters during this difficult time. To schedule a consultation, call 954-764-4330 or fill out the online form.

Source:

forbes.com/sites/bobcarlson/2024/07/28/advantages-and-disadvantages-of-using-tod-accounts-to-avoid-probate/