Transfer-on-death accounts are allowed in many states, including California. Using these accounts can make it possible for the loved ones of deceased individuals to avoid probate court. Understanding how TODs work and what benefits they offer can help families make estate plans that work best for them.
What is a TOD?
Transfer-on-death accounts are not typical checking and savings accounts. Instead, they’re investment instruments, like mutual funds or brokerage accounts. Usually, establishing an account is an easy process.
TODs can allow families to bypass probate court. This means that after death, money can simply be transferred to the beneficiaries. Eliminating the waiting process to access funds can make things much easier for a family who has just experienced a loss because there can be a lot of expenses after a death.
Nuances of TODs
There are some things people need to be aware of when setting up a TOD. The funds in a transfer-on-death account will pass to the named beneficiary, no matter what a will says. In that way, they’re similar to life insurance policies.
Also, naming minors as the beneficiaries to a TOD can pose some problems. If they’re still underaged when the account holder passes, they can’t control the investment funds. Instead, they will be managed by a guardian or conservator. This process can vary from state to state.
As with all estate planning, it’s a good idea to consult an attorney before setting up a TOD. An experienced lawyer may put their understanding of estate administration and probate to good use and provide families with insights that help them avoid hurdles when the time comes.