What is a Transfer on Death Account?

When trying to pass down your assets, trusts and wills are typically the best way to do so, but they’re not perfect. There are special circumstances where a trust or a will won’t be able to complete your wishes. If you expect this to happen, you can still ensure your assets pass down the way you want to who you want through a Transfer on Death (TOD) account.

There are special banking accounts that can pass assets similarly to how trusts and wills can but lack other beneficial features. This is why something like a TOD account is only recommended when needed. If you need something other than a trust or will for your estate planning needs, contact the attorneys at The Law Offices of Diron Rutty, LLC for more information.

What is a Transfer on Death Account?

Transfer on Death (TOD) accounts are special banking accounts that can hold your assets and pass them on to a designated beneficiary upon your death. Similarly to a trust, it bypasses the lengthy probate process that significantly taxes your assets and beneficiaries.

Unlike trusts that need to hold trust checking accounts, you can transfer assets from your already existing checking, savings, and brokerage accounts directly into TOD accounts. Functionally speaking, it works similarly to trust but with fewer steps and less oversight by those who would tax your assets.

Why Use a Transfer on Death Account?

A Transfer on Death account removes the need for executors and leaves little room for legal contention. You’re having a bank process and transfer your money like you would with a wire transfer, but upon your passing.

Doing it this way can protect the transfer of assets when you have a spouse, child, or other heir to whom you do not want to leave your assets and whom you would have difficulty striking or keeping out of your trust or will.

Why Not Use a Transfer on Death Account?

Since TOD accounts have no executor, they cannot be used to settle your debts. This can unintentionally pass your debts on to other heirs. This also means that if there are assets you were going to pass to someone through a will or trust as well, they will have their assets used to pay off your debts.

By protecting one inheritance, you can endanger the other. If you use a TOD account for one beneficiary, it may be better to use TOD accounts for all of them unless you have assets set aside for your debts in a trust or will.

What Assets Can They Hold?

One of the differences between TOD accounts and trusts is what they can hold. Because this is effectively a bank account, you want to use these to transfer mostly non-physical assets, or assets that represent monetary value. These include items such as:

What Assets Can’t They Hold?

While you can pass on certain physical assets, don’t try to store anything that a bank wouldn’t hold. This includes assets such as real estate or vehicles. While you can store deeds and titles, storing a deed or title in a bank account does not give the bank account ownership over these items.

The 6 Steps For Creating a TOD Account

Creating a Transfer on Death (TOD) account involves several steps:

  1. Choose the type of account. TOD accounts can be savings, checking, Certificates of Deposit (CDs), or brokerage accounts.
  2. Select your beneficiary. You can pass your assets down to a spouse, child, relative, or even a charitable organization. As long as the entity can legally own the assets you’re transferring to them, you can leave it to them.
  3. Set up the account with your bank. Visit your bank or financial institution to set up the account and ask for a TOD account.
  4. Complete the TOD Designation Form the bank gives you. This form will be where you provide information on you and your beneficiary so there are no mistakes on who will receive your assets. Once it’s done, submit it to the same bank or financial institution who gave it to you.

Contact the Estate Planning Attorneys at The Law Offices of Diron Rutty, LLC for Help

Our attorneys understand that the typical estate planning process won’t meet everyone’s needs, so our experienced attorneys and our online platform work to be flexible to meet your needs. When a trust or will won’t carry out your estate planning needs, contact our law firm. We’ll review your situation and make recommendations on what may be best for you. A Transfer on Death account may be one of those options.

If you want to view our services before a consultation or attempt to complete some of the estate planning process before meeting an attorney, browse our online services. We have bundled and unbundled options available.

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