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Can I name a Beneficiary on a Non-IRA account? Thumbnail

Can I name a Beneficiary on a Non-IRA account?

Yes, there is a way to designate a beneficiary on a non-IRA account and it is called a Transfer on Death agreement or TOD.  Some financial institutions use the term Payable on Death or POD.  It means the same thing.  This provision is used less often than the beneficiary designation on an IRA because it is seldom presented to clients as an option by banks and brokers.   It can be helpful to many people, but it has limitations and is not a good fit for everyone.  It is important to seek professional advice specific to your situation before making changes in your accounts, but here is some guidance to help you ask the right questions.

First, if you have a bank or brokerage account in your name alone and there is no provision for the distribution in the event of your death, then that money will pass through your will in the event of your death. This may be good, but there could be a better way.  

 The TOD agreement when attached to a bank account or brokerage account designates the person or persons to receive the account at the death of the account owner.  This is not the same as a joint account.  This agreement gives no rights during the owner’s lifetime and the owner can revoke or change the designation at any time.   One advantage to using a TOD is it is a simple solution to direct your assets at death and there is no cost to add the TOD agreement to a new or existing account.  It does not require the assistance of an attorney.  You just request the form from your broker or banker.  It is easy to change when you have life changes such as marriage, divorce, births or the death of a loved one.  In the event of your death, the account transfers directly to the person or persons named without delay.

 Most importantly, this agreement supersedes your will.  When you place the TOD designation on an account that money never goes to your will.  This is often referred to as “avoiding probate.”  It can be positive for people to avoid the cost and publicity of probate.   

 Because a TOD agreement bypasses the will, you must coordinate any beneficiary designations with your overall estate plan.  It is important to know when you place beneficiary designations on all your accounts there won’t be money going through the will so directions in your will may not be satisfied.  This could include directions in the will about paying final expenses or fulfilling bequests.  Again planning and professional advice is important.

 For smaller estates or to transfer a specific account outside the will the TOD works very well.  For larger estates and more complicated situations a trust is superior to using a TOD agreement.  The ultimate goal in planning for the transfer of your estate at your death is to make sure it is done according to your wishes.  The TOD agreement is a tool that can be helpful to many people but it is not right for everyone and it must be carefully coordinated with your overall estate plan.  

Written by Connie C. Guelich, CFP, AEP, CLU, ChFC.  This represents our views at the time of this writing, and it is subject to change.  It is not intended to be personal investment advice.   If you would like to discuss your own account, please don’t hesitate to call us.  We are here to help and welcome your call.