Avoid Probate and Control Distribution of Non-qualified Assets After Death
Probate, the legal process in which a will is meticulously reviewed to determine whether it’s valid and authentic, is something most people dread. (Click here to learn more about probate.) It’s costly, time consuming, public record, and leaves the distribution of a loved one’s assets up to the government. If you want to avoid this, we recommend completing a Transfer on Death (TOD) Deed, which will allow you to take control of how your non-qualified assets (home, car, joint accounts, etc.) will be distributed after you pass and ultimately help to ensure your loved ones are taken care of as you wish them to be.
What is a TOD Deed?
A TOD Deed allows a person, charity, business, or trust to receive assets at the time of a benefactor’s death without going through probate. An account holder can specify what percentage of assets each of their beneficiaries should receive, thereby smoothing the process of the distribution of assets post-death. Essentially, the TOD Deed allows you to add beneficiaries to all your non-qualified assets, and they would not have access to these assets until after you pass.
What a TOD Deed extends to is dependent on the state it is in. A TOD Deed is usually used for stocks, bonds, and brokerage accounts. However, in Indiana, they are also used to distribute Indiana real property, banking accounts, and titles on vehicles since 2009. TOD Deeds also have many names, depending on the state. Although it is dubbed the TOD Deed in Indiana, it may also be called a Beneficiary Deed (Arizona), Deed Upon Death (Nevada), or Transfer on Death Instrument (Illinois). In Florida, Texas, Michigan, Vermont, and West Virginia, there is also the Lady Bird Deed, which extends only to real estate.
PODs, Trusts, Wills: How do they differ from TODs?
- PODs – While both TODs and PODs (Payable on Death) are very similar, the important thing to remember is that TOD designations enable you to take over asset ownership while POD designations enable you to liquidate bank accounts or CDs. In other words, assets are transferrable on death while bank accounts are payable on death.
- Trusts – The purpose of a trust is to control your assets “from the grave.” For instance, a trust can be helpful if you have a loved one with special needs who will need help utilizing and properly allocating their inheritance. While trusts also enable you to avoid probate, you can deliver the same results with a POD and TOD Deed.
- Wills – Wills should cover smaller assets not included in a TOD Deed, such as fine China, collector cars, etc. Additionally, a TOD Deed overrides the will, which means that the named beneficiaries on your TOD Deed will usurp the named beneficiaries on your will. Example: If you have named your daughter as beneficiary on the TOD Deed but both your son and daughter on the will, only your TOD designations for your daughter will apply to your assets. Thus, potential conflicts can arise if you don’t coordinate strategically and regularly to update both the TOD Deed and your will.
Benefits of a TOD Deed
Beside avoiding the historically stressful probate process, a TOD Deed can have many benefits, such as:
- It simplifies and speeds up the inheritance process and helps to ensure your assets are passed to the people you want.
- Your inheritors receive access to your assets as soon as you pass.
- You don’t have to be married to the person you designate as a TOD beneficiary.
- It allows you to preserve the step-up in basis on inherited property, whereas simply gifting this amount would cause your inheritor to lose it. (Click here to learn more about step-up in basis.)
- You can change beneficiaries and finetune the percentage of allocations for each, as well as revoke or amend a TOD Deed.
- If a property is under the TOD Deed, it will continue to qualify for exemptions while you’re alive, including the federal gift tax exemption.
- You’ll be able to refinance, sell, or rent out a property under the TOD Deed if need be.
- Overall, the TOD Deed is less expensive than a living trust.
What You’ll Want to Remember about the TOD Deed
- For a TOD Deed to be accepted, documents must be signed by the correct person. Otherwise, if forms are completed incorrectly or there is missing information, a firm may reject the deed.
- Once recorded, a TOD Deed for property is in the public eye and can be viewed by anyone.
- The TOD Deed is not right for everyone. Those who receive Medicaid may lose these benefits if they receive a sudden windfall of cash after a loved one’s passing.
- If you wish your beneficiary to distribute your wealth to multiple people and do not also have these people listed as beneficiaries, your named beneficiary has no legal obligation to do this once you pass. This means choosing your beneficiary wisely so as not to disinherit a loved one.
Ultimately, a Transfer on Death Deed can prevent the worst from occurring – your loved ones being unprotected after your passing. With the TOD Deed, you can avoid any unwanted outcomes from an arduous probate process, which can leave those you care about open to creditors, lawsuits, and other difficult financial challenges. With a TOD Deed, you are the one in control.
Remember that you needn’t go it alone. Although a TOD Deed is simpler than the probate process by far, it may not be processed if completed incorrectly. Our team of experienced professionals can walk you through your questions about TOD Deeds and other aspects of legacy planning. Contact us today to schedule some time to sit down and discuss your questions. Click here to contact us now. Or click here to learn more about our Financial Planning and Investment services.
Want to learn more?
Here are more resources to help answer your questions…
Transfer on Death (TOD): What It Is and How the Process Works – Investopedia
Payable on Death (POD) Account Benefits and Drawbacks – Investopedia
Indiana Transfer on Death Deed Form – DeedClaim
Blog by Greg Storen, MBA – President/ CEO, Advisory Services Director
Learn more about Greg and the rest of the Storen Financial team here.
Storen Financial and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.