Transfer on Death Vs. Beneficiary

By Bryan Driscoll, J.D.

Transfer on Death Vs. Beneficiary

By Bryan Driscoll, J.D.

When you die, your estate must go through a legal probate process, which can take up to a year to complete depending on the complexities of someone's assets and debts. For this reason, it might also delay the passing of such assets to your heirs.

Elderly couple speaking with a young woman about paperwork

A complete estate plan will include different legal tools to avoid probate and pass your assets to your heirs quickly. Not only do these tools allow your heirs to receive your assets without delay, it can also avoid the expense of the probate process.

Types of Beneficiaries

By definition, a beneficiary is anyone you leave assets to when you die. The most common way this happens is through a will. When you create your last will and testament, you name people to leave your items to after you die.

A will must go through probate which is the process of paying any outstanding debts and distributing your assets. Your beneficiaries inherit these items after the court has processed your estate through probate.

Transfer on Death Accounts

Probate is expensive and it takes time for your assets to be distributed. Avoiding the cost and time of probate can be achieved through transfer on death accounts. Some examples of these include:

  • Retirement accounts
  • Checking and savings accounts
  • Bonds
  • Investment accounts

These accounts have a beneficiary but the person you name receives access to the account immediately after your death. This means the account is not probated and transfers to your heir right away.

Most bank and investment accounts allow you to name a transfer on death beneficiary. If you want to leave a checking account to your niece, you complete a form with your bank naming your niece as the beneficiary. As soon as you die, she will take over as the owner of the account.

Avoiding Probate

The biggest advantage of this type of account is that it avoids probate. Since it does not require a change in title or ownership, probate isn't necessary. The beneficiary you choose has immediate access to the account.

Besides avoiding probate, any transfer on death accounts are not subject to your debts. If you die with debts, your estate must settle them prior to distributing your assets to your beneficiaries. Many times, this process reduces what they receive because the court needs some of your assets to pay off the debt.

If you leave a transfer on death account to a beneficiary but also put in your will that you leave that specific account to someone else, the documentation will supersede your will. The account creates a contract. Your will is not a contract and, therefore, the asset will not pass according to your will.

It's important to understand the differences between transfer on death beneficiaries and those beneficiaries identified in a will. These are crucial components of your overall estate plan. Understanding how to use these types of accounts to avoid the expense and time drain of probate is key to ensuring all of your beneficiaries receive the assets you want them to receive in a timely manner.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.

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