What Does “Transfer-on-Death” Mean in Tampa?

As you explore various estate planning options in Tampa, you may come across the phrase “transfer-on-death.” Also known simply as “TOD,” this represents a relatively simple and popular estate planning strategy in Tampa. How exactly does it work? Is a TOD right for your estate plan? These are all questions you might want to ask your estate planning attorney in Florida.

Transfer-on-Death is a Type of Beneficiary Designation 

A TOD is a type of beneficiary designation. Beneficiary designations are simple estate planning tools that identify a beneficiary who will inherit a specific asset. Unlike Wills and Trusts, a beneficiary designation only deals with a single asset. In addition, these are effectively “contracts” and not estate planning documents. Because of this, all beneficiary designations (including TODs) bypass probate.

Why Would I Need a TOD? 

You might want to establish a transfer-on-death if you own an account that you wish to transfer to a beneficiary in its entirety. For example, you might have a considerable investment portfolio of stocks and bonds. Perhaps you plan to leave all of these investments to your younger sibling.

In this situation, a TOD could be an effective way to help your sibling inherit your portfolio almost immediately after your death – and without going through probate. Remember, probate can be a time-consuming and expensive process. Many estate planning strategies revolve around avoiding probate – and a TOD is one of the easiest and most cost-effective ways to accomplish this goal.

Due to new IRS rules, assets transferred to trusts may no longer receive the “step-up in basis” that helps reduce capital gains implications. As a result, transferring various accounts to trusts may no longer be as effective. A TOD still provides this step-up in basis while also avoiding probate – presenting a potential alternative for those who wish to reduce capital gains on investments after death.

What Are Some Potential Downsides to TODs? 

While TODs can reduce capital gains, they may still be subject to creditor claims before beneficiaries can take ownership of the funds. This is because a TOD is still part of the decedent’s taxable estate. Another disadvantage is the fact that TODs are unsuitable for certain types of assets, such as IRA and other retirement accounts. That being said, you can explore other types of beneficiary designations for retirement accounts.

At the end of the day, the pros and cons of TODs depend on your unique circumstances. The only way to learn whether this strategy makes sense is to discuss your specific priorities and goals alongside an experienced estate planning lawyer.

Can an Estate Planning Attorney in Tampa Help Me With TODs? 

If you want to explore the concept of a transfer-on-death in more detail, why not contact an experienced Tampa estate planning attorney? These legal professionals can explain the ins and outs of TODs – and they can assess your unique circumstances. Based on these discussions, you can determine whether a TOD is the right choice for you. To learn more, contact Knudsen Law today.

Sources: 

law.cornell.edu/wex/transfer-on-death_(tod)

investopedia.com/terms/t/transferondeath.asp#:~:text=A%20transfer%20on%20death%2C%20or,without%20first%20passing%20through%20probate.