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Transfer on Death: Avoiding The Unnecessary Aggravation

By: Investor Solutions

By: Investor Solutions, Inc.

Losing a cherished member of your family is an emotional time, and it is never easy. Not only is it hard dealing with the personal loss, but sudden medical bills, funeral costs, and other unforeseen expenses can follow it. And don’t forget the dreaded process of Probate! However, passing your assets to your heirs does not have to be a nightmare if you plan ahead- after all you worked hard to build your estate, so why not protect it?

What is Probate? Probate is the court process of validating a will and appointing a personal representative to manage the estate. Probate property is property that passes through the will and the probate process (e.g., cash, stocks, land). In many cases, not only can probate lack privacy, it also tends to be costly, inconvenient, and time-consuming (in some cases, assets can be tied up for more than a year!).

Transfer on Death (TOD) Agreement is an estate-planning tool that allows you to avoid the disadvantages of probate by establishing a list of beneficiaries. The assets are then transferred directly to your beneficiaries following your death. TOD Agreements supersede other arrangements regarding those assets listed in your will or trust. Your State of Domicile must be one of the states that offer the TOD service. Forty-six out of the fifty states have enacted the Uniform Transfer on Death provision. As of January 2001, only the states of Louisiana, New York, North Carolina, and Texas have yet to recognize TOD’s as a uniform standard. Most brokerage firms/custodians now offer this feature for a minimal fee (typically under $100). Unfortunately, it is not a top priority to sales driven brokerage houses, so in many cases it is up to the account holder to initiate the process.

How do TOD’s operate and what types of accounts are eligible? In most cases, only Single name, Joint Tenant, Sole Proprietorship, and Community Property accounts are eligible. You retain complete control over your accounts and simply list the names of your adult beneficiaries on the TOD Agreement. You can revoke, modify, alter percentages, and change beneficiaries at any time (however, some firms may charge a fee to do this). Most states do not permit beneficiaries that are non- U.S. Citizens, minors, and animals (sorry Snoopy). Trusts, UGMA, Corporate, Tenants in Common, non-US Citizen, and IRA accounts are not eligible for TOD.

What if you have a Will or Trust? That’s great! TOD’s should never be used as a substitute to a will or trust; instead it should be used to supplement your current estate plan. Your personal assets such as jewelry, real estate, vehicles, and collectibles will not qualify for TOD Agreements. TOD Agreements may help you bypass probate, but make no mistake; your estate will still remain accountable for any estate taxes due.

Should I consider establishing the Transfer on Death services? Under the TOD service you are assigning beneficiaries to your assets allowing your cash and securities to bypass the probate process. If avoiding the costs and the above-mentioned disadvantages of Probate is a concern of yours, then most likely TOD is worth the time and slim fee to establish. You should consult with your attorney and/or estate planner to discuss your personal plan. TOD allows you control over all the assets, the taxes due on income and dividends will still be your responsibility. Important to remember is the assets registered under the TOD service will still be included in your taxable estate and subject to the applicable federal and state taxes. It is also essential to explain the course of action to your beneficiaries, as they will need to contact your financial advisor upon your death.