|To TOD or NOT to TOD?
While Revocable Trusts or TOD/POD registrations can avoid probate, each has special issues. Having the financial advisor and client's attorney work together can provide clients with their best protection in life and at death.
August 20, 2009
Most states allow for TOD or POD registration of individually held securities, brokerage accounts and bank accounts, when the custodian allows such registration. TOD and POD are the initials for transfer on death (TOD) and payable on death (POD). Like life insurance, Individual Retirement Accounts (IRAs) and annuities, which all designate specific beneficiaries, a TOD or POD registration enables a specific beneficiary to be identified on accounts for a direct distribution at death and bypasses probate. Before TOD and POD, accounts without a specified beneficiary could bypass probate only if held in joint names or a trust. Otherwise, the asset would be left to go through probate for death disposition.
From the financial advisor's perspective, using TOD or POD — like the direct beneficiary designations in other investments — is another available tool to lower costs at death and speed the distribution process. Many times it takes a simple form or letter of instruction to make this change — with no fee involved. However, it has also become another area that the public may have best intentions, but may inadvertently cause themselves harm.
Here are some cautions and guidelines regarding this topic:
A TOD/POD or direct beneficiary designation on any investment, IRA, life insurance, annuity or bank product is usually immediate with the completion of company forms and the submission of a certified copy of a death certificate to the custodian without any legal or accounting fees.
In general, the larger the estate, the less likely that a TOD/POD beneficiary would be appropriate. However, many advisors have clients with total estates in the $2 million and less range and then a TOD/POD for some of the estate holdings, properly positioned, could make perfect sense. Too often, the attorney provides titling instructions, in writing, to the client for their future reference and does not assist in the actual re-titling process. This information may or may not be shared with the financial advisor. Incidental asset accounts may be opened by the client and titled without any guidance. Close collaboration between the attorney and financial advisor on account titling and beneficiary designations will assure the client is best served in life and at death.
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Reina Schlager, CPA, PFS*, RHU is a Financial Advisor with SCHLAGER SONNTAG & LEVIN (SS&L). SS&L provides tax advice and does not provide legal advice. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through SS&L, a Registered Investment Advisor. Cambridge and SS&L are not affiliated. Reina is a member of the AICPA's PrimePlus/ElderCare Task Force.
*regulated by the AICPA, not a state or federal agency.
Disclaimer: This is not legal advice. This is information to better prepare your client before they meet with an attorney.