You may have heard of a POD—Payable on Death—designation on an account. It’s an important feature you should be aware of. By designating someone as the POD of a bank account, for example, it is like saying: I want the money in this account to be immediately accessible by this person upon my death without having to go through probate. And while not every state treats POD designations the same (talk to your estate attorney to learn about how your state operates), for the states that allow them to operate as described above, they can be a helpful tool in your estate planning.
So you know that you can add a POD to your bank accounts, but did you know that you can do something similar for your brokerage accounts called TOD?
A brokerage account is an account that holds investments like stocks, bonds, mutual funds or Exchange-Traded Funds (ETF). These accounts allow the holder to put money into the account and buy and sell these investments. Depending on how the account is set up, it may be that you have an investment advisor that does the purchasing and sale for you, or you may do it yourself.
TOD stands for transfer on death. Much like the POD designation, it allows these brokerage account assets like stocks, bonds, mutual funds and ETFs to be transferred to the named beneficiaries without having to be distributed by a will or the probate process.
Working with your brokerage firm, you can name beneficiaries who can get the assets when you die. They will likely have you fill out a form with information about the beneficiaries. You can name one beneficiary or multiple beneficiaries. If you name multiple beneficiaries, you can designate the percentage each beneficiary will receive. Working with a qualified investment professional is advised in all cases. These are things you want to get right—both from the perspective of the will writer and the beneficiary (and it’s also good for the executor to get help, too).
It is important to note that just like with POD, the TOD designation does not give named beneficiaries the ability to access or exert any control over your account assets while you are alive. They only get the assets after you die and they submit the appropriate paperwork with the firm (usually this includes presenting a death certificate).
Remember that you should update both TOD and POD beneficiaries (and other non-probate asset beneficiaries) if your wishes change as to who receives the money in the associated accounts. Updating your will is not going to change who gets these non-probate assets so don’t forget this important step if you wish to change beneficiaries.
It is important that someone knows you have a brokerage account and that you have named TOD beneficiaries on the account. Without this information it will be more difficult for the transfer process to begin.
While it is the responsibility of the beneficiaries to submit the appropriate paperwork to the firm in order to claim the account assets, it is a good idea to tell your executor about the TOD designation. By telling your executor about the account and the TOD beneficiaries, the executor will know that the account assets will not be distributed through your will and the probate process. They may also have some of the items the beneficiaries may need to claim the account assets like a death certificate. Though it is not a requirement of the executor duties, it is nice for the executor to help by providing this information to the TOD beneficiaries.
You should name a transfer on death beneficiary for your brokerage account if you want the account assets to pass directly to the beneficiary without having to wait for the completion of the probate process to allow the beneficiary to be able to have those assets. TOD is a way to give some of your assets to beneficiaries outside the will and probate process. Remember that though your executor will not be responsible for distributing these assets as part of their executor duties, you should tell the executor that you have these types of assets and note that they will pass to beneficiaries through the TOD process.
Executor.org is designed to assist executors with every step in the executor duties. We also provide helpful tips for assembling a great team to assist with every aspect of the estate. An executor is never alone in the execution of their duties, and with the right people beside them, the executor can successfully complete the estate administration.