Welcome to Part 11 of our Planning for the Future Series. In this installment, we will address a valuable planning concept: transfer on death (TOD). Understanding what transfer on death means in the state of Texas and why it is important can empower you to efficiently transfer your assets to designated beneficiaries upon your passing, avoiding the probate process. Let’s explore the concept of transfer on death and uncover its significance in related to your assets.

What is Transfer on Death (TOD)?

Transfer on death, also known as payable on death (POD), is a legal arrangement that allows you to designate beneficiaries who will automatically inherit your assets upon your death, bypassing the probate process. By establishing a TOD designation, you can designate specific individuals or organizations to receive your assets directly, ensuring a streamlined transfer of ownership.

Importance of Transfer on Death

Transfer on death offers several significant benefits:

1. Avoidance of Probate: One of the primary advantages of TOD is its ability to bypass the probate process. Assets with designated TOD beneficiaries can be transferred directly to the beneficiaries upon the owner's death, avoiding the time, costs, and potential complexities associated with probate.
2. Privacy and Confidentiality: Since TOD assets transfer outside of probate, the transfer does not become a matter of public record. This ensures privacy and confidentiality, shielding sensitive financial information from public scrutiny.
3. Simplicity and Efficiency: TOD allows for a straightforward transfer of assets to beneficiaries without the need for court involvement or complex legal procedures. This simplifies the distribution process and saves time for your loved ones.
4. Flexibility and Control: TOD designations offer flexibility as they can be easily modified or revoked during your lifetime, allowing you to adapt your plan to changing circumstances or preferences.
5. Asset Protection: TOD designations can provide a level of asset protection by directing assets directly to beneficiaries, potentially shielding them from creditors or legal claims against your estate.

Assets Eligible for Transfer on Death

Various assets can be eligible for transfer on death, including:

1. Financial Accounts: Bank accounts, certificates of deposit (CDs), brokerage accounts, and retirement accounts (such as IRAs and 401(k)s) can often be designated for TOD transfers.
2. Real Estate: Some states, including Texas, allow for TOD designations on real property. This allows the property to transfer directly to designated beneficiaries upon the owner's death, without the need for probate.
3. Vehicles: In some states, including Texas, motor vehicles can be titled with a TOD beneficiary designation, simplifying their transfer to the designated beneficiary.

Considerations for Transfer on Death

When utilizing transfer on death designations, consider the following:

1. Designating Beneficiaries: Carefully select your beneficiaries and ensure their contact information is accurate and up to date.
2. Contingent Beneficiaries: Designate contingent beneficiaries in case the primary beneficiaries predecease you or are unable to inherit the assets.
3. Coordination with Overall Estate Plan: Ensure that your TOD designations align with your overall estate plan, including your will, trust, and other beneficiary designations, to avoid any conflicts or inconsistencies.
4. Professional Guidance: Work closely with an experienced estate planning attorney to ensure that your TOD designations are legally valid and appropriately aligned with your broader planning goals.

Conclusion

In this eleventh part of our Planning for the Future Series, we have discussed the importance of transfer on death (TOD)designations in Texas. By embracing TOD designations, you can simplify the transfer of your assets, avoid probate, and protect your privacy. The ability to directly designate beneficiaries for various assets offers flexibility, control, and efficiency in ensuring your assets reach your chosen beneficiaries seamlessly. In Part 12 of the Planning for the Future Series, we will address the following question: What are federal gift and estate taxes?

Please note that this blog post is intended for informational purposes only and should not be considered legal advice. If you require assistance with Texas estate planning, consult with a qualified estate planning attorney to ensure compliance with applicable laws and protect your interests.

Make an appointment for a free consultation to speak with the Provident Financial Planning team of Certified Financial Planner™ and JD/CPA tax experts, so we can advise you on how to implement an investment, tax, and legacy strategy that is tailored to you.

Schedule an appointment.

In His Name,

Zachary J. Montgomery, JD, CPA, CFE

zachary@providentfp.com