A Simple Alternative to Estate Planning
What is “The Uniform Transfer on Death Security Registration Act”?
The Uniform Transfer on Death Security Registration Act is a law that allows you to name beneficiaries to inherit stocks, bonds, bank accounts, and other securities without a probate. This can be accomplished by having a “transfer on death” provision (TOD) or a “pay on death” provision (POD) on the accounts. Specifically, TOD provisions refer to beneficiary designations on securities accounts, and POD provisions are for bank accounts. If an account has multiple owners, you may choose to have a POD or TOD provision, but under the law, the account would not transfer to the beneficiaries until the last owner on the account dies.
For example: A, B. and C are the owners of a securities account. The owners wish to add D, E, and F as beneficiaries of the securities account. A passes away so D, E, and F wish to exercise their rights as beneficiaries and receive the account. Since A, B, and C by default hold the securities account either as joint tenants with right of survivorship, tenants by the entireties, or owners of community property held in survivorship form (if they live in a community property state), upon A’s death, B and C remain owners of the account and D, E, and F have no rights as beneficiaries. Until A, B, and C all pass away, the beneficiaries are not entitled to the securities account.
What are the benefits of having a Payable on Death (POD) or Transfer on Death (TOD) provision on your accounts?
A POD or TOD provision has no effect on ownership until you pass away, which means that you can continue to exercise full decision-making authority on those accounts, without any of the beneficiaries’ consents or knowledge. Additionally, having a POD or TOD provision on avoids the need for a probate proceeding if the accounts are under your name at the time of your passing.
What are the disadvantages of having a Payable on Death (POD) or Transfer on Death (TOD) provision on your accounts?
If you have an account with a POD or TOD provision, it would not be subject to your Last Will and Testament, so if you give additional instructions your will regarding those accounts, or if you have contrary instructions in your will as to who will receive that account, the POD or TOD designations will overrule and govern whatever is stated in the will for those accounts. Similarly, a POD or TOD provision will overrule any instructions left in your trust regarding those accounts, except if the trust is named as a beneficiary of those accounts. If you are looking for a flexible distribution plan to address different types of contingencies, or if you wish to restrict your beneficiaries’ access to the security accounts, a TOD or POD designation may not be your best option.
What do I need to do to add a POD or TOD provision to my accounts?
Speak to your account representative at your financial institution for instructions on adding beneficiaries to your accounts. Many financial institutions will ask you to fill out a form that will have specific instructions, rules and limitations on adding a POD or TOD provision on the account.
Are there any tax implications in adding a POD or TOD provision to my accounts?
Although having a POD or TOD will avoid having the account subject to probate, the account is still counted when calculating the value of your taxable estate for federal or state estate taxes. Also, beneficiaries of a securities accounts with a TOD designation will receive a step up in cost basis upon your death, which means that when they receive the securities account upon your death, the fair market value will be the value of the account at the time that you passed. It is important that you consult with a qualified tax professional to learn more about how adding POD or TOD designations to your accounts may affect you and your beneficiaries.
Thinking about developing your own estate plan but don’t know where to start? Contact the experienced Trusts & Estates attorneys at EPGD Law for a complimentary consultation in Miami, West Palm Beach and Washington, D.C.