One of the most important things you can do as you’re developing your estate plan is to make sure that all your accounts have transfer on death (TOD) designations with the beneficiaries of the accounts listed. This includes your bank accounts, retirement accounts and investment accounts.
This is particularly important if the accounts are only in your name. If you’re married and you and your spouse have Joint Tenants with Rights of Survivorship (JTWROS), whichever one is widowed first will get the account and will skip probate.
Any account that has a TOD designation will avoid probate. That saves your loved ones time and stress and delays in getting the money.
Some people who have set up living trusts will designate their trust as the TOD beneficiary. Then all of the money will go to the trust to be divided according to their estate plan. It’s often easier to do that on retirement and investment accounts than to retitle the account in the trust’s name.
How do TOD designations fit into your estate plan?
Your beneficiary designations for these accounts can also be included in your will. However, the TOD designations you made with the financial institutions themselves will take precedence over any language in your estate plan.
If you’re making changes to your estate plan because of divorce, remarriage or the death of one of your beneficiaries, it’s imperative that you make the changes on your accounts as well. The reverse isn’t necessary. However, you will cause less confusion for your loved ones if the beneficiary information is consistent.
It’s wise to review your TOD designations once a year to just be sure they are what you remembered and what you still want. A review of your estate plan is also a good idea whenever any change occurs that could affect it. Your attorney can help you update it as needed.