The Importance of Titling and Designations In Estate Planning

From the Hook Law Firm.

When developing an estate plan, most people assume that their wills are the final document regarding the disposition of their assets. However, many assets pass outside of probate, and thus are not affected by a will in any way. Over the last twenty years, there has been a dramatic rise in non-probate assets; thus, more and more property is passing to the next generation by means other than a will. Many well-drafted estate plans are completely undermined by the way that an asset is titled; others are affected by the designation of a beneficiary.

We have advised people who wanted to pass assets to their children without probate to use the TOD (transfer on death) designation to do it.  As another example, a widow may want to leave a bequest to a friend or caregiver.  She can name that person as the beneficiary of a TOD account who will receive the assets on the death of the account holder without probate.

Banking rules long have allowed people to title their accounts as payable on death to an individual or individuals. This allows, for example, a husband to get his wife’s account without going through probate. In the 1990s, states started to allow owners of brokerage accounts to do the same, using what is known as a transfer-on-death account. State laws, not federal ones, govern how securities are registered in the names of their owners. Now, Texas and Louisiana are the only states that don’t have transfer-on-death statutes, said Benjamin Orzeske, legislative counsel at the Uniform Law Commission, a nonprofit group that promotes clarity of law among the several states.

Transfer-on-death and payable-on-death accounts let their owners bequeath securities or money without going through probate. For a brokerage account, the beneficiary has to reregister securities in his or her name. That requires an application along with a copy of the death certificate. If no one is named on an account, it passes to heirs under the will.

Keep in mind that a TOD designation over-rides a will, so be sure that your account designations are up to date.

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