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.

In general, however, we recommend you speak to an estate planning attorney as soon as possible about your options. These 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. Please feel free to ask an IFA advisor about referencing online links to the various TOD forms used by the three custodians that IFA utilizes for our clients -- Schwab, Fidelity and TD Ameritrade. Also, note that custodians do update their forms from time-to-time, so you should also check with your advisor if you fill them out at a later date. 

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've encountered unfortunate stories 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, 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 and help in reviewing any beneficiary designations in accounts that we manage for you, an IFA wealth advisor can be reached at: 888-643-3133. 

Besides offering wealth management services, we also have in-house tax planning resources. Please feel free to contact John Dahlin, the head of IFA Taxes, a division of Index Fund Advisors. He has more than a decade of experience advising clients on a wide range of personal and business tax issues. John can be reached at: (888) 302-0765. His email is: [email protected]

This article is distributed for informational purposes, and it is not to be construed as tax advice, an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. There is no guarantee investment strategies will be successful.  Investing involves risks, including possible loss of principal. IFA Taxes does not provide auditing or attestation services and therefore is not a licensed CPA firm. IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. Federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter herein.