How Transfer on Death Accounts Work
How transfer on death accounts work

How Transfer on Death Accounts Work

Even estates with wills usually do go to probate court. This is not a major issue in some states and an expensive headache in others. Learn more about probate here. By changing some accounts to transfer on death (TOD), you can avoid some assets going through probate, says Yahoo! Finance in the article “Transfer on Death (TOD) Accounts for Estate Planning.”

Here’s how it works:

A TOD account automatically transfers the assets to a named beneficiary, when the account holder dies. Let’s say you have a savings account with $100,000 in it. Your son is the beneficiary for the TOD account. When you die, the account’s assets transfer to him.

A more formal definition: a TOD is a provision of an account that allows the assets to pass directly to an intended beneficiary, the equivalent of a beneficiary designation. Note that the laws that govern estate planning vary from state to state, but most banks, investment accounts and even real estate deeds can become TOD accounts. If you own part of a TOD property, only your ownership share transfers.

TOD account holders can name multiple beneficiaries and split up assets any way they wish. You can open a TOD account to be split between two children, for instance, and they’ll each receive 50% of the holdings, when you pass.

One thing to bear in mind: the beneficiaries have no right or access to the TOD account, while the owner is living. The beneficiaries can change at any time, as long as the TOD account owner is mentally competent. Just as assets in a will can’t be accessed by heirs until you die, beneficiaries on a TOD account have no rights or access to a TOD account, until the original owner dies.

Simplicity is one reason why people like to use the TOD account. When you have a properly prepared will and estate plan, the process is far easier for your family members and beneficiaries. The will includes an executor, who is the person who takes care of distributing your assets and a guardian to take care of any minor children. Absent a will, the probate court will determine who the next of kin is and distribute your property, according to the laws of your state.

A TOD account usually requires only that a death certificate be sent to an agent at the account’s bank or brokerage house. The account is then re-registered in the beneficiary’s name.

Whatever is in your will does not impact the TOD account. If your will instructs your executor to give all of your money to your sister, but the TOD account names your brother as a beneficiary, any money in the account is going to your brother. Your sister will get any other assets.

Speak with an estate planning attorney about how a TOD account might be useful for your purposes.

Reference: Yahoo! Finance (June 26, 2019) “Transfer on Death (TOD) Accounts for Estate Planning”

 

Talk To Your Kids About Their Inheritance
Talk to your children about their inheritance.

Talk To Your Kids About Their Inheritance

For some parents, it can be difficult to discuss family wealth with their children. You may worry that when your kid learns they’re going to inherit a chunk of money, they’ll drop out of college and devote all their time to their tan.

Kiplinger’s recent article, “To Prepare Your Heirs for Future Wealth, Don’t Hide the Truth,” says that some parents have lived through many obstacles themselves. Therefore, they may try to find a middle road between keeping their children in the dark and telling them too early and without the proper planning. However, this is missing one critical element, which is the role their children want to play in creating their own futures.

In addition to the finer points of estate planning and tax planning, another crucial part of successfully transferring wealth is honest communication between parents and their children. This can be valuable on many levels, including having heirs see the family vision and bolstering personal relationships between parents and children through trust, honesty and vulnerability.

For example, if the parents had inherited a $25 million estate and their children would be the primary beneficiaries, transparency would be of the utmost importance. That can create some expectations of money to burn for the kids. However, that might not be the case, if the parents worked with an experienced estate planning attorney to lessen estate taxes for a more successful transfer of wealth.

Without having conversations with parents about the family’s wealth and how it will be distributed, the support a child gets now and what she may receive in the future, may be far different than what she originally thought. With this information, the child could make informed decisions about her future education and how she would live. Do you or your spouse have children from a prior marriage or relationship? Read more about planning for blended families.

Heirs can have a wide variety of motivations to understand their family’s wealth and what they stand to inherit. However, most concern planning for their future. As a child matures and begins to assume greater responsibility, parents should identify opportunities to keep them informed and to learn about their children’s aspirations, and what they want to accomplish.

The best way to find out about an heir’s motivation, is simply to talk to them about it. Talk to your kids about their inheritance.

Reference: Kiplinger (May 22, 2019) “To Prepare Your Heirs for Future Wealth, Don’t Hide the Truth”