Is it wise to use a TOD account to avoid probate?

On Behalf of | Jun 4, 2021 | Probate

If you’re getting ready for estate planning in Wisconsin, you might have heard about using a transfer on death, or TOD, account to avoid the probate process. Here’s a closer look at the pros and cons of using TOD accounts.

What is a TOD account?

A transfer on death account allows stocks, bonds and mutual funds to get held in a brokerage account. If a beneficiary wanted to receive any investments in this account, they would need to provide the company holding this account with the owner’s original death certificate.

Advantages of using a TOD account

The main reason most people use one of these accounts is to avoid probate. People often seek to avoid probate because it’s a time-consuming process. With a TOD account, you can bypass probate and transfer assets directly to your beneficiaries.

Another advantage of TOD accounts is that multiple people can maintain a joint account. With this type of account, your share of investments inside it gets divided among any surviving account members.

Drawbacks of using a TOD account

While TOD accounts can be good to use, they do have a few potential disadvantages. If you have a joint TOD account with your spouse and one of you passes away, the surviving spouse gains the power to change beneficiaries.

Another disadvantage is that minors will not be able to receive investments from a TOD account until they reach the age of 18. If you want a minor to receive investments sooner, you might need to choose another type of account.

To summarize, there are advantages and disadvantages to using TOD accounts, so whether you choose to use one depends on your needs and wishes for your estate. If you’re unsure how to properly plan your estate, it might be time to schedule a consultation with an estate planning lawyer.