When a person dies in California, the probate process can be long and expensive. For that reason, many people look to use legal instruments to pass assets to their heirs outside the reach of probate. One way to do that is to use a transfer on death account, or TOD account. With a TOD account, ownership of the account will transfer to a named person automatically on the death of the person who made the account.
Types of assets that can be held in a TOD account
Not all states allow standard bank accounts to transfer on death outside of probate, but some states do. These bank accounts might also be referred to as payable on death. Many kinds of retirement accounts, like IRAs and 401(k)s can be set up as TOD accounts. The Uniform Transfer on Death Registration Act allows for stocks, bonds and brokerage accounts to be TOD accounts. Additionally, in some states, it is possible to make the deed to real property transfer on death.
Advantages of TOD accounts
The primary advantage of TOD accounts is that assets are passed to beneficiaries without the need for costly legal processes. For most types of holdings, the TOD provision on the account will govern even if some other testamentary instrument, like a will, says the account should go to someone else. People should be careful to make sure their testamentary instruments are consistent anyway, to avoid confusion among their heirs.
Special circumstances for TOD accounts
In some states, the surviving spouse of the deceased has a claim to the assets of the deceased even if there is a TOD account. In that case, the surviving spouse’s rights to the assets may supersede the TOD beneficiary’s claim. If the person named to receive the TOD account predeceases the account owner, then the TOD assets are typically paid in shares to the surviving heirs. TOD accounts can make asset transfer simpler, but they don’t solve all possible estate planning issues.