Beneficiary Designation: Transfer on Death

Transfer on death designation deplicted with keys and house offered in a lady's handsAnother probate avoidance option is using a Transfer on Death (ToD) designation. If a ToD designation is used, the ownership of the account or asset is transferred at death of owner to the beneficiary. ToDs are widely available only for securities and brokerage accounts. In some states, ToD designations can also be used to transfer automobiles and real estate . A ToD is added to a brokerage account using a form provided by broker, to real estate by recording a deed and to a vehicle by adding a beneficiary to the title at appropriate agency. An attorney is not needed, except for preparing a ToD deed. A recording or filing fee may be required when adding a ToD beneficiary.

ToD designations have a number of advantages. Like PoDs, they are easy to establish and use. You retain full control of the account or asset during your lifetime. You can change beneficiaries or remove the ToD designation. Or close the account. Or sell the asset. The beneficiary cannot be changed after your death. Your beneficiary will generally need just a death certificate and identification to claim the account or asset. The designated beneficiary will not need an attorney or court approval to take control of the account or asset. ToDs are also much more difficult to challenge than a will.

ToD designations also have a number of disadvantages. Like a PoD designation, a ToD designation will also control the distribution of the account or asset, even if your will or trust includes a contrary instruction. ToD designations are also only available on a limited number of assets, which vary based upon state law. The beneficiary can liquidate the account or asset and use the funds for any purpose. A ToD can only be placed on a non-qualified / non-retirement stocks, bonds or brokerage accounts. Not all assets in a brokerage account are eligible for ToD designation under state law (for example gold or a variable annuity), so a brokerage account with a ToD designation can still have probate assets. A ToD designation, just like a PoD, and unlike a revocable trust, does not allow the designated beneficiary to access your account while you are alive, but incapacitated, for your benefit. Another disadvantage is that if you transfer the account to another firm, the ToD designation may not be automatically included on new account.

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