Using Transfer on death accounts in minimizing probate costs

Using Transfer on death accounts in minimizing probate costs

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Probate is a legal process undesirable to many. Because of its costs, hassles, and lengthiness, many people seek ways to avoid or minimize it. And one of these ways is by creating transfer on death accounts, also known as payable on death accounts.

What is a transfer on death account?

A transfer on death account is any financial account you own, in which you designate a beneficiary in the document. When you pass away, all funds in the account will transfer to the beneficiary you named whether or not you have a will. And this transfer takes place directly, completely outside probate.

A transfer of death account or payable on death account is a great way to minimize probate costs. How is this done?

How to use transfer on death accounts in minimizing probate costs

Typically, probate costs increase in relation to the value of assets going through probate. The expenses incurred when $5 million worth of assets go through probate will be far more than those incurred when only $50,000 goes through probate. When you talk about probate, you talk about estate tax, income tax, probate court charges, payment of debts, etc., and all of these must be settled from the taxable estate.

But interestingly, a transfer on death account is not taxable; so long the state doesn’t impose inheritance tax.

So it goes without saying that you can easily convert all your bank accounts to transfer on death accounts. Say, you intend to leave $50,000 to your son. Instead of writing a will, you can fund the sum into a transfer on death account. All you need to do is to name the beneficiary in the account. Upon your passing away, each account you have so created will go to the designated beneficiary.

In the end, the total value of estate that goes through probate will be minimal, hence,  you have successfully minimized probate cost to a large extent.

Transfer on death account can also lead to probate avoidance

If you leave all your money in payable on death accounts and no probate asset is left in your estate, then there will be no probate. It may be that aside your money, you have real property which you own by joint tenancy with your spouse (so the property will pass outside probate), life insurance, retirement accounts, and other assets you hold in a living trust.

This will lead to a complete probate avoidance because there is no probatable asset.

TOD account for estate planning

As a TOD account holder, you can name multiple beneficiaries for one account. You can lay down instructions for the funds to be divided at certain proportions amongst the beneficiaries, and your wishes will be honored.

You can change your beneficiaries at any time

Transfer on death accounts allow you to change the beneficiary designation at any time, and for good reason.

As life goes on, situations may bring you a change of heart. Your situation may change in diverse ways. It may be that you designated your spouse as a beneficiary in your TOD account. It then happens that you got divorced, or lose the spouse to death. In such a case, you wouldn’t want their name to remain in the TOD account anymore. You then need to remove their name and replace it with someone else. It could also be that you got a new child or spouse.

The designated beneficiaries cannot access the account until the death of the holder

Designated beneficiaries have no authority over TOD accounts until the owner of the account passes away. It is just like a will that goes into effect at the death of the testator.


Aside probate cost minimization, another significant benefit of TOD accounts is their simplicity. You do not have to worry about getting witnesses to sign, or notarizing your will. It is almost as simple as opening a normal bank account.

When you pass away, your executor will send a copy of your death certificate to the bank or brokerage company. The TOD account will then be re-registered under the name of the beneficiary.

Get legal help with your estate planning

Estate planning is more than preparing a will or opening a transfer on death account. It is more than planning for asset transfer. Estate planning is planning for your future and that of your family and estate.

To avoid making costly mistakes, consult an estate planning attorney near you.

DISCLAIMER: The information provided in this blog is for informational purposes only and should not be considered legal advice. The content of this blog may not reflect the most current legal developments. No attorney-client relationship is formed by reading this blog or contacting Morgan Legal Group.

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