Transfer on death registration lets you name someone to inherit your stocks, bonds or mutual funds in your brokerage account(s) without probate. It works very much like a payable on death bank account. You register your ownership either with your stockbroker or financial adviser and make a request to take ownership in what’s called a “beneficiary form.” This form will show your ownership and will also show the name of your beneficiary. To be clear, after you have registered ownership this way, the beneficiary has no rights to the stock as long as you are alive. You are free to sell or give away your stock, name a different beneficiary or close the account all together. But on your death, the beneficiary can claim the securities without probate simply by providing proof of your death and some identification to the broker or transfer agent.
The benefits of using a transfer on death registration are:
- It is easy to create;
- Designation of a beneficiary costs little to nothing;
- It is easy for the beneficiary to claim the securities after the original owner dies.
The only downside to using this method is your broker’s policies might not allow you to name an alternate beneficiary – but check with your broker first.
If you have a brokerage account, or more than one as many people do, you should contact your broker or financial advisor for instructions. Most likely the broker will send you a form on which you will name one or more beneficiaries to inherit the stocks in your account at your death. From then on, the account will be listed in your name with the beneficiaries like this “Mary Doe T.O.D. Jim Doe.”
If you want to name more than one beneficiary for your transfer on death designation, just name all the beneficiaries on the form. Each will inherit an equal share of your stocks unless you specify otherwise. However, you can leave the beneficiaries unequal shares if the stockbroker or transfer agent’s policies allows it (check with your advisor).
It your broker’s policies allow it, name an alternate beneficiary. If the primary T.O.D. beneficiary dies before you do, the alternate will inherit.
Instead of using a transfer on death registration, it is easy to put your security assets into your Revocable Living Trust by registering your stocks, bonds and mutual funds as trustee of your living trust. All brokers and mutual fund companies will help you. It’s even easier if you set up accounts to consolidate all your investments at a big investment company such as Charles Schwab or Fidelity. You can put your entire account into the living trust and then automatically buy and sell securities in the name of the trustee. Once your account is in the trustee’s name, all securities in the account are then held in trust. That means you can use your living trust to leave all the contents of the account to a specific beneficiary. If you want to leave stock to different beneficiaries, you can either establish more than one brokerage account or leave the contents of a single account to more than one beneficiary to be owned together.
But always consider transfer on death registration before registering stocks, bonds or mutual funds in the name of your living trust. For more information, visit my website at RudolphLegal.com.