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PRACTICES

Transfer on Death Accounts

PRACTICES

Transfer on Death Accounts

A Transfer on Death Account (TOD), or Totten trust, is a financial account for which you name a beneficiary. When it comes to planning your estate, there are advantages and disadvantages to using transfer on death accounts.

The principal advantage includes avoiding probate.
  • Because you name a beneficiary for your Transfer on Death account (TOD), the account passes to the beneficiary at your death, without the need for probating your will with respect to that account.
  • After you pass away, your beneficiary will simply bring a certified copy of your death certificate to the appropriate financial institution, show identification and fill out some simple forms.
  • Once this is done, the funds in the account are transferred to your beneficiary.
The disadvantages include the potential unintentional treatment of beneficiaries.
  • Because a Transfer on Death Account (TOD) is a non-probate asset, it is not controlled by your will.
  • If you update your estate plan to change beneficiaries, you’ll need to do more than just change your will.
  • You will need to fill out the appropriate change of beneficiary form for each of your transfer on death accounts.
  • Additionally, the assets that pass by TOD, are often not responsible for their pro rata portion of any estate taxes or administration expenses. If beneficiary A gets $1,000,000 via TOD and beneficiary B gets a $1,000,000 lake property via the will, B will have to pay all the funeral expenses, administration expenses and estate taxes.
  • If all cash and financial accounts pass by TOD and the primary assets in the estate are illiquid assets such as a residence, real estate or business, there may be no funds to pay administration or ongoing carrying costs. The executor may need to seek funds from TOD beneficiaries who may be unwilling to contribute assets they received to pay expenses.
  • You, or your agent under a power of attorney if you are incapacitated during your lifetime, may need to use assets to pay various expenses, including assets earmarked to pass TOD to certain beneficiaries. Use of one account over another may unwittingly, but unfairly, benefit certain beneficiaries to the detriment of others causing disputes that would have been avoided had the the executor of a will or a trustee of a trust been able to access and control the assets.
Transfer on Death Accounts may be effective on a selective basis or in smaller estates, but can cause more problems than they are worth in many estate plans.
 
 
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