Estate planning can involve a variety of different tools and tactics. Someone’s goals for their personal legacy and the nature of the assets they have accumulated will influence how they manage the process. Some people rely on a trust to keep their biggest resources out of probate court. Others use a will to designate their beneficiaries for most of their valuable property.
Some people employ alternative approaches to bequeathing certain resources to others. For example, those with financial accounts may use transfer-on-death designations to pass their bank accounts or investment funds directly to someone else after they die. Why might people file transfer-on-death designations with a financial institution instead of moving specific assets into a trust or including them in a will?
They want to bypass probate court
Any assets listed in someone’s will typically pass through probate court after their death. Those assets are then subject to creditor claims and can possibly increase the risk of estate taxes. One of the simplest reasons for people to use a transfer-on-death designation for their financial resources is that they would prefer to keep those assets out of probate court.
They don’t want their assets in a trust
Once someone uses an asset to fund a trust, it is no longer their personal property. A transfer-on-death designation allows someone to maintain direct control over their assets, which isn’t always possible if someone uses a financial account to fund a trust. The account will remain in their name until after their death. At that point, the beneficiary selected to receive the account can present appropriate evidence to the financial institution and assume control over what remains in the account.
For many people, transfer-on-death designations are a fast and simple means of sidestepping probate requirements while maintaining direct control over their resources. The primary risks of using a transfer-on-death designation are that the account will still be vulnerable to creditor claims during someone’s life and that people sometimes overlook those financial accounts when updating their estate planning documents.
For people in a variety of circumstances, arranging for an account to transfer after their death is a simple and effective means of ensuring that the right person inherits their financial resources. Learning more about the different tools for transferring personal holdings to specific beneficiaries may benefit those developing a robust estate plan and seeking legal guidance is a great way to get started.