Determining If Transfer-on-Death Makes Sense for Your Estate Plan

Determining If Transfer-on-Death Makes Sense for Your Estate Plan

Certain kinds of accounts can be passed on to beneficiaries without putting them through the time and bother of probate court.

One way is by establishing a transfer-on-death (TOD) account. In the case of a bank account, for example, an agreement is signed with the custodian directing them to surrender the funds to a named heir on your death. Other types of property can be similarly dealt with, although retirement accounts are usually excluded.

State laws vary on transfer-on-death accounts. Indeed, the reason IRAs, pensions, 401(k) policies and the like are excluded is because they are regulated by federal law, which determines beneficiary policies. Relevant agreements often include language stating that the custodian bank has not provided advice on whether a TOD account serves your best interests or is fully valid under local law. Boilerplate also usually directs you to seek professional advice to assure you understand the tax and estate planning implications of a TOD account, so take care.

In the case of jointly held accounts, usually involving spouses, one or the other party can establish a TOD agreement. However, on their demise, the surviving spouse has considerable rights, which vary from state to state, but generally provide no less than half of the funds involved to the surviving spouse. Beyond that, anyone can be named as a beneficiary – children, other family members or friends.

On the TOD holder’s death, the designated recipient can simply show up with proper identification and claim the funds or other assets from the custodian. Care needs to be exercised. Income and estate taxes may apply and any creditors will have a claim, too. The recipient may find themselves holding the bag if they claim their legacy without properly investigating the situation.

For more information, please read:
How Transfer-on-Death Accounts Can Fit Into Your Estate Planning | Kiplinger


The College Admissions Scandal and Estate Planning; The Problem of Privileged Kids Using Social, Human and Financial Capital to Build Retirement Income