By Chelsea Healey
Estate planning can be difficult for many people simply because it requires a person to contemplate their own mortality. When people begin the estate planning process, they mainly create wills or trusts, name their life insurance beneficiaries, and sign advanced medical directives. As such, individual brokerage account assets are often overlooked in the estate planning process.
One way to make sure your brokerage account assets transfer to the beneficiaries of your choice is to create a Transfer on Death (“TOD”) plan with your brokerage firm. A TOD plan is a legal designation that allows brokerage assets remaining in your investment account to pass directly to your named beneficiaries at the time of death. Most states have adopted the Uniform TOD Security Registration Act, which gives TOD plans their legal authority.
During your lifetime, you will have full control of you brokerage assets with a TOD plan. After you die, the ownership of your assets simply passes to the named beneficiaries. Additionally, you will have the ability to change your named beneficiaries as many times as you want during your lifetime. Furthermore, the biggest benefit that comes with creating a TOD plan is that your brokerage account assets will most likely entirely avoid probate, which can be costly and time-consuming.
Although there are several benefits to creating a TOD plan, it is important to understand that it can only be used for individual brokerage accounts and non-retirement accounts. As such, you should contact your brokerage firm to confirm which of your investment accounts are eligible for TOD plans. Additionally, the plan becomes final upon death, and the beneficiaries you designated in your plan will go into effect and cannot be revoked. It is also imperative to understand that the TOD plan supersedes a will or trust. For example, if your will designates your son and daughter as the beneficiaries of your brokerage assets, but you designated your daughter as the sole beneficiary in your TOD plan, your daughter alone will receive your brokerage assets.
If you are interested in creating a TOD plan, contact your brokerage firm so they can assist you with creating a plan that is tailored to your individual brokerage accounts. If you have already created a TOD plan, confirm who is recorded as the beneficiary of your brokerage account and make any necessary changes. Additionally, if you decide to transfer your brokerage accounts to a new firm, confirm that your TOD plan also transfers with your account assets.
On June 17, 2015, FINRA published an Investor Alert specifically discussing this topic. If you have any questions regarding a TOD plan or any general questions regarding the transfer of brokerage account assets on death, please visit https://www.finra.org/investors/alerts/plan-transition-transfer-brokerage-account-assets-death