Estate Planning

Transfer on Death Beneficiary Designations for Financial and Real Property Assets

James R. O’Neill —

Transfer on Death (“TOD”), also known as Payable on Death (“POD”), account registrations are a popular way to avoid the requirement to pass assets through probate upon death and operate as an alternative to retitling assets into a revocable trust during life. Typically used with financial accounts, a TOD account registration designates one or more beneficiaries to receive the assets of the account upon death of the account holder directly from the financial institution without the need for probate or estate administration. Similar to designating beneficiaries for retirement and insurance assets, a TOD account registration is accomplished by completing standard beneficiary designation paperwork with the financial institution. Upon the death of the account holder, the designated beneficiary presents to the financial institution a death certificate and documentation that the state or financial institution may require, and the proceeds generally are distributed reasonably promptly. As with a revocable trust, the TOD registration can be changed or revoked at any time during the account holder’s lifetime.

While this technique for avoiding probate is quite easily accomplished, consideration should be given to the overall estate plan, including post-death liquidity needs for taxes and other expenses of the estate, prior to removing assets from the estate through TOD registrations or other beneficiary designations. While accounts with a TOD registration pass outside of the estate with no probate, the assets in the account are subject to estate taxation and generally are not available to the estate for the payment of taxes or other expenses of administration.[1] If all of the decedent’s assets have designated beneficiaries, the question of payment for funeral and other expenses and remaining tax and other obligations of the decedent either requires cooperation among the beneficiaries or becomes a point of contention and potential litigation.