TOD agreement can reduce hassles for heirs - Ahwatukee Foothills News: Money

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TOD agreement can reduce hassles for heirs

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Posted: Tuesday, February 5, 2013 2:46 pm

Among the reasons you work hard all your life may be so you can leave something to your children, grandchildren or other family members. So, naturally, you’d like to make it as easy as possible for your heirs to take possession of those assets you want them to have. And that’s why you may want to consider establishing a Transfer on Death (TOD) agreement on certain accounts.

Once you’ve established a TOD agreement for your account, ownership of the assets held in that account pass directly to the designated beneficiaries, bypassing probate. Why is this important? Because probate has three major drawbacks:

• It’s time-consuming. If your estate has to go through the probate process, it could easily take a year or more for your assets to be distributed to your heirs.

• It’s expensive. Attorney and court fees could devour up to 5 percent of your estate’s value — which means fewer assets going to your loved ones.

• It’s public. The probate process is open to everyone. This means anyone can obtain a copy of your will, the names and contact information for your heirs, the inventory of assets and other documents filed as part of the probate proceeding.

As you can see, you’ve got some good reasons to avoid probate — and a TOD agreement can help. Of course, a TOD agreement can’t meet all your estate-planning needs. While it may be particularly useful in helping you bequeath specific financial assets, such as stocks, bonds and other assets held in your brokerage accounts, it can’t help you deal with estate taxes or address other complex estate-planning issues.

And that’s why you also may want to consider creating other estate-planning tools, such as a revocable living trust. Similar to a TOD agreement, a revocable living trust allows you to leave assets to your heirs without going through probate. Furthermore, when you set up a revocable living trust, you can control your assets during your lifetime and determine how they will eventually be distributed to your heirs. You could, for example, have money distributed to your children or grandchildren in installments, over a period of years. Many people like having this ability, especially if they are unsure of the money management skills or maturity level of their heirs. Plus, a properly established revocable living trust will carry out your wishes if you become incapacitated. Be sure to consult with your legal advisor to see if a revocable living trust is appropriate for you.

While a TOD agreement can’t take the place of all estate-planning tools, it can complement them. And a TOD agreement offers another feature that can prove valuable: flexibility. Specifically, you can revoke or modify your TOD agreement at any time in response to changes in your life or family circumstances.

To determine if a TOD agreement is appropriate for your needs, contact your tax advisor or legal professional. It’s taken you many years to accumulate your assets, so take some time to help ensure they end up where you want them to go.

This article was written by Edward Jones for use by Ahwatukee Foothills Edward Jones Financial Advisor Joseph B. Ortiz, AAMS, CRPS. Reach him at (480) 753-7664 or joseph.ortiz@edwardjones.com. Accredited Asset Management Specialist and AAMS, Chartered Retirement Plans Specialist and CRPS are registered service marks of the College for Financial Planning.

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