When an individual dies, the assets they leave behind form their estate. Accordingly, their estate will go through an administration process, which involves collecting all assets, settling obligations and distributing the remaining properties to the deceased’s beneficiaries.
However, not all assets go through this process. Certain types of properties transfer directly to an individual’s designated beneficiaries upon death. These are known as transfer on death (TOD) assets. Examples of these assets are payable-on-death bank accounts and certain retirement accounts.
Avoidance of probate
TOD assets skip the probate process entirely, saving them from the time-consuming and potentially costly proceedings. Instead, the accounts’ designated beneficiaries can claim their shares directly from the institution holding it, whether a bank or brokerage, without court intervention.
Expedited asset distribution
With TOD assets having their own direct distribution process, fewer properties become part of an estate’s probate, making the process relatively quicker than if more assets were involved. Furthermore, it may also reduce the overall cost of settling an estate.
Potential drawbacks
While TOD assets generally have a positive impact on an estate’s overall administration, they also have their drawbacks. For instance, conflict could arise if the deceased estate owner failed to carefully coordinate their TOD account terms with their will, resulting in inconsistencies.
It is crucial for individuals to carefully plan their estate plan and the potential implications of using TOD designations. Seeking guidance from a competent estate planning attorney can help ensure that all aspects of an estate are well-coordinated and that the individual’s wishes are carried out effectively.