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.
Index Fund Advisors, Inc. (IFA) is a fee-only advisory and wealth management firm that provides risk-appropriate, returns-optimized,
globally-diversified and tax-managed investment strategies with a fiduciary standard of care.
Founded in 1999, IFA is a Registered Investment Adviser with the U.S. Securities and Exchange Commission that provides investment
advice to individuals, trusts, corporations, non-profits, and public and private institutions. Based in Irvine, California, IFA manages
individual and institutional accounts, including IRA, 401(k), 403(b), profit sharing, pensions, endowments and all other investment accounts.
IFA also facilitates IRA rollovers from 401(k)s and 403(b)s.
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About the Authors
Mark Hebner and additional IFA employees contributed to this article
Founder and President of Index Fund Advisors, Inc., and author of Index Funds: The 12-Step Recovery Program for Active Investors. He is a Wealth Advisor, with an MBA from the University of California at Irvine and a BS in Pharmacy from the University of New Mexico with a specialization in Nuclear Pharmacy.