Life insurance and many retirement accounts pass outside of a will through beneficiary designations. However, brokerage accounts are different. They are usually one of the estate assets passed to heirs through a will.
In our April 21 post, we wrote about transferring Colorado property with a transfer on death deed to avoid probate. In a similar vein, transfer on death registration can be a tool to designate who will inherit a brokerage account without the need to go through the probate process.
Transfer on death (TOD) registration directly transfers assets in a brokerage account to beneficiaries. You maintain control over the account during your lifetime and can change the beneficiary designation whenever necessary.
Joint ownership of a brokerage account also allows for the direct transfer of assets in a brokerage account. However, there are risks that a joint owner could make poor investment choices or take out money while you are still alive. Creditors of each owner can also make claims against jointly owned accounts.
Leaving a brokerage account through a will or trust
If you want to divide a brokerage account between several children, it may make more sense to transfer the account though your will in equal shares. This method recognizes that the value will likely fluctuate.
Depending on your circumstances, you may want to set up a trust to manage and disburse assets from a brokerage account. Providing for a child with special needs or leaving money to help offset university costs are just a couple reasons to utilize a trust.
Beneficiary designations are an important part of an estate plan. They may play a role in a strategy designed to avoid probate. But make sure to review these designations for accuracy when any major life event occurs.
Source: Kiplinger’s, “How Your Brokerage Account Can Bypass Probate,” Kimberly Lankford, July 10, 2015