Can I Do a Transfer on Death (TOD) Registration for Certificates of Deposit and Investment Accounts?
A transfer on death (TOD) designation lets the beneficiaries of an account receive assets at the time of the person's death, without going through probate. This also lets the account holder or security owner specify the percentage of assets each designated beneficiary receives. With a TOD registration, the named beneficiaries don’t have any access to or control over the account when the person is alive.
However, is a Transfer on Death (TOD) registration allowed for Certificates of Deposit and investment accounts? If so, what’s the process?
nj.com’s recent article asks, “Does New Jersey allow a "Transfer on Death" registration for these investments?” Apparently, in New Jersey, Transfer on Death designations can be made on CDs and investment accounts.
Sometimes confusion can arise about "sealing" or "freezing" the account.
Accounts that are probate assets—which are those in the decedent's name alone with no co-owner TOD designation—are “frozen” until the will is probated. The beneficiaries can’t access those funds, until the probate judge signs off and allows the executor to move forward and disburse the funds. However, when the executor is appointed, he can open an estate account and access the frozen account.
That can happen within two weeks of death, if the will is probated immediately. In that case, fund access for funeral expenses can happen right away. The executor will frequently pay the funeral home with a credit card and then get appointed executor and access funds, before he has to pay the credit card bill.
However, again in New Jersey, some of the account can be frozen for a longer period, because of the state’s tax waiver system. Half of the account is frozen by law, until the state issues a tax waiver releasing its lien on accounts with New Jersey financial institutions and on New Jersey real estate.
The waiver is accomplished by filing a tax return and paying the tax (if any), or in some instances, a form of affidavit can be filled out and sent to the financial institution and the entire account will be immediately released to the executor.
The tax waiver system also applies to TOD accounts, but not to trust accounts. So making a CD a TOD account, doesn’t avoid the tax waiver system. Half of that account could still be frozen.
Speak with a local estate planning lawyer to find out how to move assets to heirs through the use of TOD accounts in your state. They may not work for every account you want, but they may have a useful role to play in your estate plan.
Reference: nj.com (November 12, 2018) “Does New Jersey allow a "Transfer on Death" registration for these investments?”