By Lane V. Erickson, Pocatello Estate Planning Attorney
Most people don’t need a complex estate plan. Because of this, for most people, their estate planning documents are easy to understand. The most basic estate planning documents would include a last will and testament, a durable power of attorney, a living will, and a power of attorney for health care. Even when some kind of a trust is used, most people usually understand what it is and how it operates. But not all estate plans or estate planning is simple. Sometimes our clients need an understanding about some more complex options that may exist. One of these options may include a transfer on death account which is commonly known as a TOD account.
For more than 70 years, the premier Pocatello estate planning team of lawyers at the Racine Olson law firm have used their expertise and knowledge to make even complex estate planning easy for our clients to understand and use so they can make the decisions that will protect them during their lifetime and provide for their family and loved ones after they are gone. Our team of estate planning attorneys who have each earned the highest ratings possible from AVVO, Justia and Martindale and Hubbell, includes partners Randy Budge, and Lane Erickson, and attorneys Nathan Palmer and Dave Bagley. With our team’s help you can be assured that there will always be someone available to answer your questions and to assist you.
The purpose of this article is to describe what a TOD account is, and how it could be used by you as part of your estate planning. Our goal is to help you understand what happens to this type of account when a person dies, and whether creditors have the ability to get to the money or property that is located in the TOD account. By providing this information to you our hope is that you will have a better understanding of how you may be able to use a TOD account as part of your estate planning for yourself and your family.
Description of a TOD AccountAs stated above, TOD is an acronym that stands for transfer on death. This term is associated with a very specific type of monetary account that is known as an “investment account”. In other words, if you use a brokerage, or you use an online investment account that holds stocks, bonds, mutual funds, ETFs, and other types of recognized investments you may be able to take advantage of creating a transfer on death instruction for this account. A TOD account is created when the specific registration form is filled out by the owner of the account to name the beneficiary who will receive the account after the owner passes away.
A TOD account is pretty easy to establish. However, if you haven’t set it up correctly it can cause problems both for yourself and for your family. For example, a TOD beneficiary must be 18 years of age or older. This simply means that if you have minor aged children who are under the age of 18, they cannot be a named recipient under a TOD account. The money that would be in the TOD account would actually go to the guardian of the young child and then would be given directly to these children when they turn the age of 18.
Most parents recognize that this would be a problem because most 18-year olds lack the experience and knowledge to act maturely with an inheritance. For this reason, a TOD account is not ideal when you are dealing with minor aged children. Rather, in this instance, it may be better to create a minor’s testamentary trust through your last will and testament to receive the funds in this account. If the person that you want to receive these funds is already over the age of 18 and is in your opinion capable of handling these monies, then you need to worry about this.
Death and a TOD AccountAfter a TOD account is created and a beneficiary is properly registered and named on the account then things get fairly simple. The TOD account stays with the owner until the owner passes away. When this occurs, the beneficiary of the TOD account simply needs to provide proof of death to the account administrator. When this is done, the account administrator provides a packet of forms that need to be filled out in order for the transfer of the money and investments in the TOD account to be made to the account beneficiary.
Once the packet of documents is completed, the account administrator will transfer the account to the named beneficiary. After this is completed the named beneficiary is then the owner of the account. This means they have access to the monies and all the investments in the account and they could do with these things whatever they choose. In my experience, most TOD account administrators try to convince the beneficiary to keep the account with the administrator. However, there is no requirement that this be done.
Creditors and a TOD AccountThis leads us to the last part of a TOD account that you should know about. This has to do with whether creditors can access the TOD account funds to pay the debts and expenses of the individual who passed away who was the original TOD account owner. The short answer is that Idaho law requires that all creditors be paid before any beneficiaries receive any transfers from the estate of the person who passes away. TOD accounts are no exception to this legal requirement.
Idaho has a specific statute that deals with this issue. This is Idaho Code 15-6-107(2). This statute specifically states that a TOD account can and should be used to pay the expenses of the decedent if there are no other resources in the decedent’s estate to pay these debts. In other words, before the beneficiary can take the TOD account monies, they have to pay the decedent’s debts and expenses if there is no other way for these to be paid from the estate.
As you can see, TOD accounts can be a useful estate planning tool. However, there are some specific things that you need to make sure you have done correctly if you plan on using a TOD account as part of your estate planning. We have helped numerous clients deal with TOD accounts and we are confident that we can help you too!
Enlist a Pocatello Estate Planning Attorney to Help YouOur team of Pocatello attorneys can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Pocatello 83201. We will answer your questions and help you solve your Pocatello Estate Planning problems.
Enlist an Idaho Estate Planning Attorney to Help YouOur team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Pocatello 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.