Even estates with Wills usually do go to probate court. This is a minor issue in some states and an expensive headache in others. By changing some accounts to “transfer on death” (TOD), you can avoid some assets going through probate, says Yahoo! Finance in the article “Transfer on Death (TOD) Accounts for Estate Planning.”
Here’s how it works:
A TOD account automatically transfers the asset to a named beneficiary when the account holder dies. Let’s say you have a savings account with $100,000 in it. Your son is the beneficiary for the TOD account. When you die, the account’s assets transfer to him.
A more formal definition: a TOD is a provision of an account that allows the assets to pass directly to an intended beneficiary, the equivalent of a beneficiary designation. Note that the laws that govern estate planning vary from state to state, but most banks, investment accounts, and even real estate deeds can become TOD accounts. If you own part of a TOD property, only your ownership share transfers.
TOD account holders can name multiple beneficiaries and divide assets any way they wish. You can open a TOD account to be shared equally between two children, for instance, and they’ll each receive 50% of the holdings when you pass.
One thing to keep in mind: the beneficiaries have no right or access to the TOD account while the owner is living. The “beneficiaries” can change at any time, as long as the TOD account owner is mentally competent. Just as assets distributed through a Will can’t be accessed by the recipient until you die, beneficiaries on a TOD account have no rights or access to a TOD account until the original owner dies.
Simplicity is one reason why people like to use a TOD designation on an account. When you have a properly prepared Will and estate plan, the process is far easier for your family members and beneficiaries. The Will includes a Personal Representative (or an Executor), who is the person who takes care of distributing your assets, and a guardian to take custody of any minor children. Absent a Will, the probate court will determine who the next of kin is and distribute your property according to the laws of your state.
A TOD account usually requires only that a death certificate be sent to an agent at the account’s bank or brokerage house. The account is then re-registered in the beneficiary’s name.
Your Will does not impact a TOD account at all. If your will instructs your Personal Representative to give all of your money to your sister, but the TOD account names your brother as a beneficiary, the money in the account will pass to your brother. Your sister will receive only the assets that are subject to your Will.
Speak with an estate planning attorney about how a TOD account might be useful for your purposes.
Reference: Yahoo! Finance (June 26, 2019) “Transfer on Death (TOD) Accounts for Estate Planning”