Setting up a Transfer on Death designation for an individual investment account can be a form of account inheritance.
There is a way to designate your individual investment account to be inherited by someone upon your death. It’s called a “Transfer on Death” (TOD) designation.
There are several ways of passing on assets upon one’s death. Some ways include:
- Setting up a beneficiary on a retirement account
- Creating a trust and moving assets into the trust
- Having a will and estate plan, and the assets get distributed according to what you’ve established in the plan
- Probate, which is when the courts in your state decide who will inherit your assets
- Transfer on Death designation
I’m not an attorney, and this is not intended to be legal advice or personal investment advice. I’m not going to get into these different methods of passing on assets, except to discuss the Transfer on Death designation as it relates to individual investment accounts.
After Tax Individual Investment Account Inheritance
An individual investment account, not a retirement account, can’t have a “beneficiary” like a retirement account does. With a retirement account like an IRA, when you set up the account you can also designate who will inherit the assets upon your death. These beneficiary instructions typically apply whether or not you have a will and regardless of how your other assets are distributed. For individual accounts, there is a way to designate this using what’s called a Transfer on Death Designation, or TOD.
Especially if you don’t yet have a will or estate plan, setting up this type of designation can help to avoid probate in the event of your death. Talk to your estate planning attorney to find out if a TOD is something you should set up for your account.
What is a Transfer on Death Designation?
A Transfer on Death Designation, or TOD, permits your property or asset to be transferred to someone upon your death without having to go through probate. Probate can be a time consuming and complicated process through the courts in your state. In addition, if your estate goes through probate, your assets are distributed according to the rules of the state, not based on your wishes.
TOD designations can help to create simplicity, because you’ve established the legal documents necessary to move these assets to someone of your choice typically without the courts getting involved.
How do I initiate a TOD Designation for my account?
Contact your custodian or financial adviser to learn how to establish a TOD for your individual account.
In some cases, it’s a two-step process which requires you to complete an online form, then print, sign, and return the document to your custodian.
You’ll need the contact information for the person you will be designating as your TOD, and you’ll also need their social security number and date of birth.
Talk to your estate planning attorney and other professionals for advice on your personal circumstances.