Transfer on Death Accounts (TOD) for Securities, CDs or Mutual Funds

(12/21/09)- Under 2001 tax legislation the federal estate tax is set to expire in 2010. If Congress does nothing, the estate tax will pop up again in 2011, at a top rate of 55%, with a $1million exclusion.

The 2009 federal estate top tax rate is 45%, with a $3.5 million exclusion. Republicans, who initially wanted the elimination of the tax, are supporting a top rate of 35%, with a $5 million exclusion.

By failing to act Congress has thrown estate tax planning into a mess. If Congress does pass legislation on this topic in 2010, and make it retroactive to January 1, 2010, there are several legal experts who question the constitutionality of this type of legislation.

The 2001 legislation confuses matters even more for people who inherit property and later sell it, because these beneficiaries would be liable for the tax on the sale based on the original cost of the property that they inherited.

(8/12/06)- Governor George Pataki of New York signed into law a bill that legalized the state's transfer-on-death law . The new law, Chapter 325 of the Laws of 2005 allows an individual to pass his or her securities to a beneficiary upon death without having to first go to probate.

The bill, which was sponsored by Assemblywoman Helene Weinstein (D-41st) and Senator John DeFrancisco (R-50th) went into effect on January 1, 2006.

The two states that still do not have TOD laws are Texas and Louisiana. The District of Columbia does have a TOD law.

(2/4/05)- In updating this article we now find that there are only two states that still do not have Transfer on Death (TOD) laws for their residents on their books. We still will keep the chart below in this article for historical purposes only. Otherwise you can disregard the chart. The information in the article is still pertinent to the topic. We still caution you to check with your attorney and/or your broker in connection with this matter before acting on it.

(4/27/03)-(Editors Note: Thanks to our viewer Philip McCartin we have corrected the table below where we had erroneously listed Texas as one of the states that had a Transfer on Death law on the books. He informed us of that the Securities Industry Association, an association of about 600 securities firms, has a site where you can get the list of states that have such legislation, and the date that the legislation was enacted:

Three years ago my brother and I began to write articles on this site with the sole objective of enhancing the knowledge for and about the elderly. It is not the purpose of this site to give legal advice. The following article deals with the transferal of assets in states that have passed such legislation permitting an asset to be transferred to a beneficiary without that asset going through probate distribution. We caution you to confer without your attorney for his legal opinion on this matter.

Most people are unaware of the fact that if your state of residency allows you to do it, you may pass on a security, CD or mutual fund to a designated beneficiary without that asset undergoing the probate process. You must check with your brokerage firm, bank or other financial institution to see what forms and the exact procedures required. The beneficiary has no interest in the account during the lifetime of the owner of the account. In addition the beneficiary can not control the asset since the account owner is the legal owner of the asset till he or she passes away. The beneficiary is not entitled to receive any information about the account during the lifetime of the owner. If there are multiple owners of the account the beneficiary is not entitled to the asset until the death of the last named co-owner. Passage of the asset is done under what is called a Transfer on Death (TOD)

If the owner of the account changes residency from a state where TODs are allowed to a state where TODs are not allowed the process is cancelled. The following categories of accounts are the only ones for which this process is allowed: Individual accounts; Joint tenants with rights of survivorship; Tenants by the entireties. If there are multiple beneficiaries to whom the asset will be passed to, the owner(s) must specifically state the percentage that each beneficiary is entitled to upon the death of the owner(s). Once again we reiterate that you must check with your individual financial firm as to the exact procedure and the forms that they require for having a TOD taking place. We caution you once again to ask your own legal representative as to his or her opinion on this matter.

The following are the states that to the best of our knowledge allow the TOD process for their residents:

Ala. Alaska Ariz. Ark. Cal. Col.
Ct. Del. Fl. Geo. Hawaii Id.
Ill. Io. Ind. Kan. Ken. Me.
Md. Mass. Mich. Minn. Miss. Mo.
Mont. Neb. Nev. New Ham. NJ New Mex
North Dak. Oh. Ok. Ore. Pa. Rhode Is.
South Car. South Dak. Tenn. Ut. Vt. Va.
Wash. West Va. Wis. Wyo. New York North Carolina


By Allan Rubin
updated December 21, 2009

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