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Deciding whether to create a TOD in Washington State

On Behalf of | Oct 19, 2022 | Estate Administration & Probate |

There are many estate planning tools you can use in Washington State to prevent your loved ones from going through the costly, exhausting and time-consuming probate process when receiving their assets. The most popular way to achieve this is, of course, establishing a trust, but transfer-on-death (TOD) accounts have been gaining in popularity, and some people think they are a better option; a majority are still skeptical.

Understanding TODs and how they work

Transfer-on-death accounts are investment accounts, like brokerage accounts or retirement accounts, that have a named beneficiary. When the account owner dies, the assets in the account are transferred to the named beneficiary directly without going through probate.

The pros of using TOD accounts

TOD accounts are rather easy and straightforward to establish. Basically, you just name a beneficiary on your investment account, and that’s it. You would still maintain complete control over the account during your lifetime and can change the beneficiary at any time.

The main advantage or reason why people create transfer-on-death accounts in Washington is that it helps avoid probate. Estate administration & probate, as mentioned, can be a long, costly and stressful process for your loved ones. In addition, it supersedes other estate planning documents like your last will and testament, revocable trust and powers of attorney.

Cons of using TOD accounts

If you created a joint TOD account with someone else, like your spouse or friend, they could disinherit your children by changing the beneficiary to someone else. After you die, the surviving co-owner gets full control of the account and can do whatever they want with it.

Another thing to consider is that, unlike trusts, there are no asset protection benefits with TOD accounts. So, if the beneficiary has creditors or is going through a divorce, those assets could be at risk.

Whether or not you should use a TOD account in Washington significantly depends on your situation. If you have a small estate and simple family dynamics, then TOD could be a good option. But if you have a larger estate or more complex family dynamics, then there could be other better estate planning tools to consider.