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Please be aware of the drawbacks of adopting a TOD beneficiary designation for a transfer on death. (It should read: Photo… [+] credit.) (Photo credit: STR/AFP via Getty Images)
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When you set up a “transfer on death” account, the assets will go immediately to beneficiaries after the owner passes away. Even while these assignments can help prevent probate, they should be carefully coordinated with the owner’s entire estate plan, especially for bigger accounts and estates. While it may appear that simply naming an account “Transfer on Death” and adding a beneficiary or two is sufficient, it is not always the case. Most investment accounts can easily accommodate this type of account. The fundamental advantage of these accounts is that assets can be transferred to a recipient relatively rapidly, avoiding the costly and time-consuming procedure of probating the assets. Another benefit is that beneficiaries can be altered more readily than, say, a trust.
There is no such thing as a free lunch, as the saying goes. The term “transfer on death” does not cover all of your estate planning needs. Similarly, any beneficiary designations can contain errors or omissions. When it comes to Transfer on Death (TOD) account naming, there are a few things to keep in mind.

Your beneficiaries should be reviewed after a new marriage. NEW ORLEANS, LA – NOVEMBER 16: Jay Z… [+] (L) and Beyonce Knowles attend the secondline following sister Solange Knowles’ wedding to music video director Alan Ferguson on November 16, 2014 in New Orleans, Louisiana. (WireImage/Josh Brasted photo)
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Changes in Life Must Be Addressed
The account titles will not change as your life changes. Marriage, divorce, and the death of a beneficiary are all reasons to re-evaluate your beneficiaries. Also, think about who you want to inherit your IRAs and 401(k).
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Your TOD accounts must be in sync with the rest of your estate strategy. The importance of this increases as your net worth grows. Failure to keep beneficiaries informed can lead to resentment among your heirs and perhaps legal action. Consider opening a TOD account for each of your three children, with equal amounts (just as an example). After 20 years, each of the three accounts has a radically different account balance due to withdrawals and variable account performance. If this was not your intention, beneficiaries may need to be adjusted. Otherwise, you may want to transfer funds between accounts to assist balance them out.
Another difficulty that arises when the majority of your assets are held TOD is that once the account is given to the beneficiary, the estate may not have enough money to pay taxes or support the family. When compared to a living trust, there is less estate planning flexibility with a TOD account.
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Rights of the Spouse
When naming a minor as a beneficiary on your Transfer on Death account, be cautious. Typically, investment businesses will not deliver an account’s assets to a juvenile without a court order specifying which adults have legal right to make financial decisions on the minor’s behalf. Furthermore, the TOD assignment does not include any instructions on how money should be used. You also can’t put a time limit on it like you can with a trust. What could possibly go wrong if an 18-year-old was given unrestricted access to a sizable inheritance?
A married pair is likely to set up joint transfer-on-death accounts. (JTWROS stands for Joint Tenants with Rights of Survivorship.) Keep in mind that under the right of survivorship, if one spouse dies, the other will inherit total ownership of the account. Later in life, this might be a problem in blended families or marriages.

When it comes to Elder Care, TOD accounts can be problematic. APRIL 20TH, LOS ANGELES, CA: Actresses, actresses, actresses, actresses, actresse [+] Betty White (L) and Cloris Leachman attend the 24th Annual GLAAD Media Awards on April 20, 2013 in Los Angeles, California at the JW Marriott Los Angeles at L.A. LIVE. (Photo courtesy of GLAAD/Kevin Winter/Getty Images)
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Is there a TOD for elder care?
As we get older, we may require additional assistance from a loved one. Many seniors have a Power of Attorney” (POA) who can assist them in making decisions and paying costs. The TOD does not grant someone the authority to act on their behalf.
Make a calendar reminder to check on your beneficiaries once or twice a year. You’d be surprised how often a child is forgotten, or how often your life savings are handed to your first husband (whom you now hate). There could be a reason for these omissions, or you just never updated your beneficiary on a long-ago account./nRead More

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