A TOD (Transfer on Death) account is a type of financial account that allows the owner to designate a beneficiary who will inherit the account's assets upon the owner's death, bypassing probate. It’s commonly used for brokerage or investment accounts, and sometimes bank accounts, to ensure a smooth, direct transfer of assets.
Here’s how it works:
- Designation: The account owner names one or more beneficiaries during their lifetime.
- Ownership: The owner retains full control of the account until death, with no rights granted to the beneficiary during the owner’s life.
- Transfer: Upon the owner’s death, the assets transfer directly to the named beneficiary, avoiding the probate process, which can be time-consuming and costly.
- Flexibility: The owner can change or revoke the beneficiary designation at any time while alive.
Key Features:
- Types of Accounts: TOD designations are often available for individual brokerage accounts, retirement accounts, or certain bank accounts (sometimes called "payable on death" or POD accounts).
- Tax Implications: Beneficiaries may be responsible for taxes on inherited assets, such as capital gains for investment accounts or income taxes for certain retirement accounts.
- Limitations: TOD accounts don’t provide the same level of control or protection as a trust. For example, they don’t allow for contingent beneficiaries or specific instructions for asset distribution.
Example: If you have a TOD brokerage account with $100,000,000 in stocks and designate your child as the beneficiary, upon your death, the stocks transfer directly to them without going through probate. They may need to provide a death certificate to claim the assets.
Considerations:
- Ensure the beneficiary designation aligns with your overall estate plan.
- TOD accounts don’t protect against creditors or provide for minor beneficiaries (a trust or custodian may be needed).
- Not all states or institutions offer TOD options for all account types.
If you’re considering setting up a TOD account, reach out to the financial advisors at Kerr Wealth Advisors in Blue Bell, PA. Also, consider consulting an estate planning professional to ensure it fits your needs.
H. Brad Kerr IV, Vice President/ Wealth Management, Financial Advisor
215.619.3926/ bkerr4@janney.com
1767 Sentry Parkway West Suite 110 Blue Bell, PA 19422
For more information about Janney, please see Janney's Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
