Transfer on Death (TOD) accounts require a beneficiary to be named.

Although most people believe money passes to heirs through a last will and testament after probate, but there are alternatives.

A trust is one common option in providing greater control over the distribution of assets outside of probate.

Additionally, certain assets pass through beneficiary designations.

Many people think of IRAs or life insurance policies when they hear the term beneficiary.

According to a recent Investopedia article titled “Who Can Be a Transfer on Death (TOD) Beneficiary?,” transfer on death accounts are also common means of providing an inheritance.

Who receives a transfer on death account is transferred depends on beneficiary designations and state law.

While there are no limitations on who can inherit the account, certain states have laws giving a spouse the right to the assets despite the naming of another beneficiary.

TOD accounts have several estate planning benefits.

One benefit is clarity regarding who you choose to receive the asset.

Another benefit is the funds in a TOD account will avoid probate.

Although this is a benefit, it is important to note the TOD beneficiary designation supersedes instructions in the last will and testament.

Beneficiary designations allow for a speedier distribution, but they also require vigilance in keeping the designations updated.

Although there are benefits, a TOD arrangement is a not a perfect solution for all estate planning concerns and goals.

If your heirs have creditor problems, the TOD designation provides little to no protection unlike a trust.

TOD accounts can be a flexible approach to charitable giving or can be used to fund a trust.

To add or change a beneficiary, contact the account provider.

Not all types of account allow for a TOD designation, but certificates of deposit (CDs), brokerage accounts, savings accounts, and retirement accounts often have this option.

If you are concerned about the laws in your state and how a TOD account will work with your estate planning goals, schedule a time to meet with an experienced estate planning attorney.

Reference: Investopedia (May 19, 2022) “Who Can Be a Transfer on Death (TOD) Beneficiary?”