What Is a TOD Account?
A TOD account is a bank or investment account that allows the owner to name one or more beneficiaries who will inherit the assets in the account after his or her death.
Unlike a will, this can help avoid the time-consuming and costly probate process; TOD accounts pass directly to the named beneficiaries without having to go through probate.
How Does a TOD Account Work?
When the account owner dies, the assets transfer to the named beneficiaries without going through probate.
The TOD designation supersedes any contrary provision in the account owner's will.
TOD accounts can be used for bank accounts, brokerage accounts, and even real estate.
It is crucial to note that TOD accounts are revocable, which means the account owner can change the beneficiaries at any time.
There are also some potential pitfalls to consider before setting up a TOD account.
How to Open a TOD Account?
Opening a TOD account is relatively simple. Most banks and brokerages will have forms you can fill out to designate your beneficiaries.
It is important to properly fill out and sign the form, as this will be the legal document that controls who inherits the assets in the account.
You should also keep the form in a safe place where your loved ones can find it after your death.
TOD Account Beneficiaries
The beneficiaries of a TOD account can be anyone the account owner chooses, including family members, friends, or even charities.
It is important to note that beneficiaries can be changed only by the account owner and not the beneficiary.
TOD Accounts vs Wills
While both TOD accounts and wills allow you to name beneficiaries for your assets, there are some key differences.
TOD accounts pass directly to the named beneficiaries without having to go through probate, whereas wills must go through the probate process before the assets can be distributed to the heirs.
This can save time and money, as probate can be lengthy and costly.
TOD accounts are also revocable, which means the account owner can change the beneficiaries at any time. Wills, on the other hand, are not revocable and cannot be changed once they have been executed.
TOD Account Supersedes a Will
It is important to note that TOD accounts supersede wills.
This means that if you have a TOD account and die, the assets in the account will go to the named beneficiaries, regardless of what your will says.
For this reason, it is important to keep your TOD account up to date and ensure that the beneficiaries reflect your wishes.
TOD Accounts and Death
When the account owner dies, the assets transfer to the named beneficiaries without going through probate.
The TOD designation supersedes any contrary provision in the account owner's will. If you have a TOD account and die, the assets in the account will go to the named beneficiaries, regardless of what your will says.
TOD Accounts and Spouses
In most cases, spouses are not automatically entitled to the assets in a TOD account.
This can be good or bad, depending on your relationship with your spouse.
If you are in a good relationship with your spouse and want them to inherit your assets, you will need to name them as a beneficiary.
However, if you are in a bad relationship with your spouse and do not want them to inherit your assets, you can leave them off the account.
Also, if the account owner named their spouse as the beneficiary and remarries after their death, the new spouse will not inherit the assets unless specifically named as a beneficiary.
Pitfalls of TOD Accounts
There are some potential pitfalls to consider before setting up a TOD account.
First, it is important to properly fill out and sign the form, as this legal document controls who inherits the assets in the account.
You should keep the form in a safe place where your loved ones can easily find it after your death.
Second, TOD accounts are revocable, which means the account owner can change the beneficiaries at any time.
This can be a problem if you name someone as a beneficiary and later change your mind but forget to update the account.
Lastly, TOD accounts supersede wills, meaning that if you have a TOD account and die, the assets will go to the named beneficiaries, regardless of what your will says.
The Bottom Line
TOD accounts are a simple and effective way to pass on your assets to your loved ones. It is a great way to distribute your assets according to your wishes.
It is crucial to keep the account up to date and ensure the beneficiaries reflect your wishes. You should also keep the form in a safe place where your loved ones can find it after your death.
They can be a good choice if you want to avoid probate or if you want to have the flexibility to change the beneficiaries in the future.
However, there are potential pitfalls, so it is important to do your research and consult with an attorney.
It can be a helpful tool in estate planning, but it is important to understand how they work before setting one up.
Consult with an experienced estate planning attorney to ensure a TOD account is the best option for you and your family.
FAQs
1. If someone has both a TOD account and will, which one will take effect?
If someone has both a TOD account and a will, the TOD account will take precedence, and the assets in the account will go to the named beneficiaries, regardless of what the will says.
2. Where can I get a TOD form?
Most banks and financial institutions have TOD forms you can fill out. You can also find blank forms online. However, it is important to consult with an attorney to ensure the form is properly filled out and signed, as this legal document controls who inherits the assets in the account.
3. Can my family file a complaint if I die and my TOD account does not hold them as beneficiaries?
If your family is not listed as beneficiaries on your TOD account, they will not be able to inherit the assets in the account. However, they may be able to file a complaint if they believe that you meant for them to inherit the assets but forgot to update the account.
4. How many beneficiaries can I include on my TOD account?
There is no limit to the number of beneficiaries you can include on your TOD account. However, it is important to keep the form up to date and make sure the beneficiaries reflect your wishes. You should also keep the form in a safe place where it can be easily found by your loved ones after your death.
5. How many beneficiary changes can I make to my TOD account?
You can make as many changes to the beneficiaries on your TOD account as you want. Note that the last beneficiary change you make will supersede all previous changes.
