When Is A Transfer-On-Death Form Appropriate As Part Of An Estate Plan?

On Behalf of | Aug 11, 2022 | Estate planning

There are numerous ways to arrange for property to go to specific people when you die. Moving assets into a trust is one solution. Bequeathing them to someone in a will is another common arrangement. However, the transfer of property in your will requires that it moves through the probate courts, which may not be the best solution.

If your estate is worth too much money, you may have to pay estate taxes, and if you have debts, creditors could make a claim against the property that you want your loved ones to inherit. Some people will use transfer-on-death forms as a means of ensuring a specific person will inherit certain financial assets when they die.

When are these forms the right tool for your estate plan?

When they are congruent with your other documents

One of the most common issues caused by transfer-on-death designations in modern estate plans is that those designation forms may eventually contradict someone’s estate plan.

While the estate plan and the form may mirror one another at first, the testator may forget to update their transfer-on-death designations at the same time that they update their other estate planning documents. The result can be a significant conflict that leads to probate challenges and possibly the wrong person receiving some of your most valuable assets.

When you understand their limitations

A surprising number of people think that transfer-on-death designations will give someone access to an account while they are still alive. They assume that the beneficiary will be able to access and utilize the account when they are incapable of doing so themselves, but that assumption runs counter to the very name of the document.

A transfer-on-death designation is not a substitution for proper power of attorney. It may be much more beneficial to transfer authority to someone you trust with power of attorney than to arrange for someone to simply receive the account balance when you die.

When they are supplemental to other existing documents

Transfer-on-death designations alone won’t do much to establish a robust legacy in your name. You need to take the time to create a will or trust and other documents to ensure that your loved ones carry out your wishes as you intend.

Integrating the right tools into your comprehensive estate plan will make understanding and upholding your wishes easier for the people managing your estate.