Would TOD accounts avoid probate?

| Jun 8, 2021 | Estate Planning |

Estate planning often involves drawing up a will and other relevant documents. Some people may assume that all assets go through the Alabama probate court to distribute assets to beneficiaries. When one person owns an asset, probate becomes unavoidable. However, specific financial accounts allow the owner to name a beneficiary in order to bypass probate.

Transfer on death and avoiding probate

Weighing options for transfer on death accounts could greatly help heirs. Probate may take time and come with additional expenses, so avoiding or reducing probate may make things less stressful for surviving relatives.

An investment or another financial account may allow the owner to designate a beneficiary. When the owner passes away, the beneficiary may assume ownership. Therefore, if a brokerage account holds stocks, bonds and mutual funds, the named beneficiary may claim them upon providing proof of the owner’s death. Submitting a death certificate and filling out a necessary form sets the transfer on death in motion. Probate becomes unnecessary for the account.

Other assets may require probate to transfer to the beneficiary. When involved with estate planning, someone could review all of his or her accounts to determine which ones offer a TOD option. Selecting and naming beneficiaries to these accounts may become a priority.

Issues of concern with TOD accounts

TOD might not free someone from estate-related taxes, depending on the monetary amount involved. Also, even when avoiding probate entirely, the estate might need to settle debts, tax obligations and other responsibilities.

Something else is worth noting: When one joint account holder passes away and the other holder becomes the sole owner, beneficiary designations might change. The new owner is under no obligation to keep any beneficiaries in place.

Anyone wishing to protect a presently listed beneficiary may need to discuss their options with an attorney. The attorney may advise on other matters related to TOD accounts and probate.