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Possible issues with transfer on death provisions

| Jul 9, 2021 | Estate Planning

Many accounts have a “transfer on death” (TOD) provision that allows the assets to go directly to a beneficiary and avoid probate. While this is a good first step towards estate planning, it is important to keep in mind that this is not the only step that should be taken to deal with those assets. Below are a few issues that should be kept in mind when dealing with TODs.

Life changes are not addressed

During one’s lifetime, people go through major life and relationship changes and those changes should be reflected in the TODs. Marriages, births, and deaths are all situations that should prompt an updating of beneficiaries.

The TOD does not match the remaining estate plan

It is equally important to keep up with the beneficiary’s life changes. If the intent is to give all beneficiaries an equal amount of money, but ten years after setting the TOD the balances result in an unequal amount, it is time to make some changes. Others may want to move around some other assets to equalize the amount.

Minor beneficiaries cannot access an account

If the beneficiary is a minor, the institution will most likely not release assets to them. A court will first have to name an adult who can make financial decisions on behalf of the minor, then the assets will most likely be released. Secondly, there should be a plan on how the finances will be released. Is it a lump sum or withheld until the person reaches the age of maturity?

The aim of estate planning is to provide one’s loved ones with the assets that they deserve. No one wants to create an estate plan that sets beneficiaries up for disputes, which is why it might be helpful to consult an experienced attorney for guidance.