Taking Notes

Transfer on Death and Retirement Account Beneficiaries

Taking Notes

If you have an individual taxable brokerage account and you know to whom it should go upon your demise, then you may want to consider filling out a transfer on death (TOD) form. The primary advantage of doing this is that it allows those assets to avoid the potentially long and costly process of probate. In some states this is less of a concern than others, but we recommend you speak to an estate planning attorney as soon as possible about your options, which may include leaving the account as it is, setting up a trust and having the account in your name as trustee of the trust, or naming a TOD beneficiary or beneficiaries. 

If you are planning on opening an individual taxable brokerage account, then we again recommend that you speak to an estate planning attorney about your options, which may include setting up a trust and titling the account in your name as trustee of the trust instead. Lastly, a TOD can be set up for a joint account as well as an individual account. Doing so could provide peace-of-mind to parents who want their children to receive their assets in a timely manner. Below are links to PDFs for TOD forms for the three custodians that IFA utilizes for our clients. These are the forms in use as of July 3, 2014. Custodians do update their forms, so please check with your advisor if you fill them out at a later date. 

Charles Schwab Designated Beneficiary Form

Fidelity TOD Form

TDAmeritrade TOD Form

Furthermore, as you are probably aware, if you have an IRA, 401(k), or other type of retirement account, you should have a designated beneficiary(s). Normally, you will have a primary beneficiary as well as a contingent beneficiary in the event that both you and your primary beneficiary perish simultaneously. Now and then, we encounter tragic stories such as this one that resulted from a faulty beneficiary designation.

For all of your retirement accounts, it is vitally important to review your beneficiary designation on a regular basis (at least annually) to verify that it is still in accordance with your wishes. If you have decided to make a trust your beneficiary, then we once again recommend seeking professional guidance from an estate planning attorney, as there are many potential pitfalls from both a legal and a taxation standpoint. Lastly, please do not fall into the trap of believing that what you have in your will overrides your beneficiary designation for any of your retirement accounts, as the children of the deceased IRA holder in the above linked article learned, the beneficiary designation trumps the will, and if no beneficiary is designated, then that state's inheritance laws will determine who inherits the account.

For more information on Transfer on Death Accounts, please see this article from Lacy Katzen, Attorneys at Law and Beware of Beneficiary Forms from the Wall Street Journal.

If you are a client of Index Fund Advisors, and you would like us to help you in reviewing your beneficiary designations in any of your accounts that we manage for you, please call your IFA Wealth Advisor at 888-643-3133.