How Transfer-on-Death (TOD) Accounts Are Helpful in Washington State Estate Planning

Washington estate planning attorneys use numerous strategies to create comprehensive estate plans that fit their clients’ unique needs. No two estate plans are ever the same, even though the basic documents that comprise them are, with the exception of the addition of a trust, which not everyone will need. The same applies to transfer-on-death (TOD) accounts, which can also have a place in Washington estate plans. Here’s what a transfer-on-death account can do for your estate planning objectives. 

Avoid Probate

One of the most common reasons people choose to use TOD accounts to transfer assets is to avoid probate. Probate is the process supervised by Washington state courts that verifies the existence of a will after a person passes away. 

During the probate process, the court identifies and assesses a will’s contents, settles the decedent’s outstanding debts, if any, and distributes the remainder, meaning what’s left over, to the decedent’s heirs. In some circumstances, the process can become costly and lengthy, delaying beneficiaries’ receipt of bequests.  

A transfer-on-death account in isolation will avoid the probate process entirely. Assets in a TOD account pass immediately to the beneficiaries named on the account upon the account owner’s death and, therefore, are not a part of a will. 

Nor are these accounts subject to any instructions in a will that discusses them, including if the beneficiaries named run contrary to the beneficiaries named directly on the TOD account. For those who don’t realize or understand this important detail, they risk causing an unpleasant surprise for their heirs who may have thought they were entitled to assets they, in fact, aren’t. 

Preserve Privacy

Because probate requires oversight from a Washington court, the contents and disposition of a will are not private. Additionally, probated wills are filed with the state and are accessible to anyone who wants to see them.

For public figures, this can become especially problematic, as most people in this position wouldn’t want their personal business plastered all over the place or become the subject of dinner conversation in the homes of those who knew them and those who didn’t. Even for private individuals, the prospect of a will’s contents being public is not generally appealing. TOD accounts avoid this issue altogether.

That being said, the presence of a TOD account does not mean that a will, if one exists, won’t still need to be probated. It may and often does need to go through probate, given the other terms that are present in it. For the majority of people, a transfer-on-death account represents only part of their estate plan and, consequently, would keep just those accounts out of the probate process and the public eye. 

Simplify Asset Distribution

When you set up a transfer-on-death account, whether privately or through your employer, as TODs are common for 401(k) and other similar retirement plans, the people you name as beneficiaries are unequivocally the beneficiaries. As stated above, it won’t matter what your will says regarding the disposition of these accounts. 

Upon your death, as the name of transfer-on-death accounts communicates, the transfer of assets is instantaneous. This only becomes problematic if you have listed beneficiaries you no longer wish to receive a transfer from you, such as an ex-spouse or an estranged child. 

Though the transfer of assets via a TOD account is simple, it can create controversy and friction among survivors who expected a different outcome, especially if the will’s terms conflict. Which makes TODs not always such a simple way to transfer assets, after all.  

Enjoy Lower Costs and Easy Setup

Transfer-on-Death accounts require very little money, if any, to set up. The setup process is generally easy. The entity provides a simple form to complete, detailing who you would like to name as your beneficiaries. In most instances, you will not be pinged with a reminder by the entity holding your assets to periodically review your beneficiaries. You will have to do this on your own.

With this in mind, it’s helpful to set your own periodic reminder to review the details of your estate plan, including beneficiary information for accounts that technically fall outside of your estate plan, like a TOD account, despite these accounts being used as part of your estate planning strategy. Reviewing your estate plan and adjacent accounts should be on your calendar every three years or sooner in the event of a life passage in your family that could affect your wishes. 

Life passages include a marriage, divorce, birth of a child or grandchild, or the death of a beneficiary or person holding a key position in your estate plan, such as executor, trustee, or guardian. A falling out with someone in your life would also qualify as a reason you might want to change aspects of your estate plan.    

Keep Control With the Account Owner

As long as you are alive, you remain in control of transfer-on-death accounts, meaning you can make changes to your beneficiaries whenever you would like. TODs stand in sharp contrast to other estate planning strategies, such as irrevocable trusts, which, once formed, are nearly impossible to alter. 

In an irrevocable trust, you relinquish control to someone you name upon its creation, and while you are living, you can only benefit from certain parts of the irrevocable trust, such as the interest the trust earns. TODs are nothing like this. Their assets remain yours, transferring only to your beneficiaries the moment you die. 

You should note, however, that although TODs transfer instantly, the process for your beneficiaries to receive the funds generally does not. Your beneficiaries will need to file paperwork with the entity holding these accounts and provide the required documentation to verify their identities. Unfortunately, due to bureaucratic hurdles at large companies, this can take some time, though perhaps not as long as the probate process. 

Speak With a Seattle Estate Planning Attorney for Specific Guidance

Every comprehensive estate plan and every estate planning document in it, along with the strategy underlying both, are a direct reflection of your wishes for how you would like to be cared for while you’re alive and for how you would like your loved ones to be cared for after you’re gone. Therefore, the use of transfer-on-death accounts, as discussed above, may not necessarily be a given. 

Because the estate planning process can become confusing, and because your estate plan will naturally not match what’s in your friends’, neighbors’, or relatives’ estate plans, it’s best to speak directly with an experienced Seattle estate planning lawyer for specific guidance. In addition to drafting the documents that suit your individual wishes best, they can help you decide if TOD accounts are right for you. 

At Elise Buie Family Law, we believe estate planning is one of the most important parts of creating security in your life. With this understanding, our team of Washington estate planning attorneys is ready to assist you in clarifying and achieving your individual estate planning goals. Contact us today or schedule a convenient time to speak.