A relatively new option for clients, transfer on death (TOD) accounts offer a unique beneficiary feature. Unlike similar non-retirement accounts, TOD accounts allow investors’ assets to transfer directly to their designated beneficiaries when they pass away, circumventing the probate court process. The TOD registration, which is available for both individual and joint accounts, not only streamlines the account disbursement process, it also lets account holders rest assured that their beneficiaries will receive the intended amount of assets.
Streamlined administration. With a traditional brokerage account, the owner’s assets go to the estate upon his or her death, and distribution is delayed until the probate process is completed. By contrast, funds held in TOD accounts are considered non-probate assets and pass straight to the designated beneficiaries. Once a TOD account has been established, neither a court appointment nor an account holder’s will can supersede the Supplemental Transfer on Death Registration and Beneficiary Designation Form, which designates the account’s beneficiaries. If necessary, powers of attorney may be added to TOD accounts, but they cannot establish the account or update the beneficiary designation.
TOD accounts have no contribution limits and can hold all types of positions. When the owner dies, all trading in the account must cease to prevent taxable events to the estate. The TOD account assets can, however, be transferred to the beneficiaries’ accounts, and the beneficiaries may then sell the positions, if desired. In order for a beneficiary to receive assets from a TOD account, he or she must have a brokerage account open at Commonwealth.
Tip: Before opening a TOD account, consider the location of your beneficiaries. For example, if a beneficiary lives out of the country, you will need to plan accordingly.
Unlimited number of beneficiaries. TOD account holders can designate an unlimited number of beneficiaries, each of whom will be considered a primary beneficiary. Contingent beneficiaries may be added as well. The TOD account owner can choose, among other entities, his or her estate, individuals (including minors), trusts, and churches, as beneficiaries.
You retain control. As the account owner, you continue to manage the account assets as you wish. Your beneficiaries have no rights to the account while you are living. If necessary, you can revise your beneficiary designations.
Keep in mind
TOD accounts are not for everyone. It’s important to consider how establishing this type of account will affect your overall estate plan and the provisions of your revocable trust or will.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Matthew Lang is a financial advisor located at 236 N Washington St, Monument, CO 80132. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 719-481-0887 or at email@example.com.
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