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Taking steps to keep your assets out of probate after death is almost as powerful an act of love as leaving property to your heirs. The probate process can be time-consuming and costly. One way to ensure stock or mutual fund investments avoid probate and go directly to the individual of your choice is to designate a beneficiary by submitting a transfer-on-death form to your brokerage.
Contact your brokerage to request a transfer-on-death beneficiary designation form. You might be able to download the form from the brokerage's website.
Fill out the form. A TOD form requires your name and brokerage account number, as well as your Social Security number. You also need to include the name, contact information and relationship to you, as well as Social Security numbers, of named beneficiaries. Provide in percentage figures what share of your stock or mutual fund account should go to each beneficiary.
Sign the form in front of a notary. You can find a notary at a bank, brokerage or even private mailbox facility.
Submit the form to your brokerage. Going forward, your stock or mutual fund account will include both your name and the name of the TOD beneficiary, for example, John Smith, TOD Jennifer Smith.
- To change, add or delete a beneficiary, you have only to complete a new designation form. You can make changes as often as you like, but some brokerages charge a change fee.
- In some states, such as California, Wisconsin and Washington, your spouse must sign the TOD form if she is not named as the sole beneficiary. Moreover, if the brokerage account is held jointly, the joint owner must also sign the form. Upon the first owner death, the assets pass in their entirety to the joint owner. Assets pass to the beneficiary only after both joint owners have died.
- Despite the dual-name registration, the beneficiary has no rights to the stocks during your lifetime. You retain control until you die.
- Texas and Louisiana do not allow TOD designation. However, if you reside in one of those states but the office of your broker, the stock issuer, the registration office or the transfer agent does not, you can still take advantage of the strategy.
- A TOD designation cannot be revoked by the terms of any will or trust document.