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Investment Accounts: Transfer on Death

An investment account can transfer fairly easily, as long as you designate a beneficiary and consider his or her ability to manage the account.

On a nonretirement account, designating a beneficiary or beneficiaries establishes a transfer on death (TOD) registration for the account. For an individual account, a TOD registration generally allows ownership of the account to be transferred to the designated beneficiary upon your death.

Do investment accounts pass through probate?

NO, generally, as long as the TOD designation is in place. Keep in mind that if the will stipulates anything about such accounts, the named beneficiaries on the accounts take precedence over anything stated in the will and the assets will be distributed to the named beneficiaries.

YES, if there are no TOD beneficiaries named on the account or if there is a complication with the named beneficiary. For example, if the named beneficiary has passed away first and the designation was never updated, the account will be subject to probate.

For joint ownership with right of survivorship or tenants by entirety accounts, the joint registration transfers account ownership upon the first death, usually directly to the surviving accountholder. TOD becomes effective for joint accounts if both owners pass away simultaneously.

Joint and TOD registration generally allow an account to pass outside the probate estate, enabling the surviving owner or beneficiaries to avoid the time and expense of that process for this account.

Regardless of the account type, estate taxes may be assessed on your taxable estate. Be sure to consult with your attorney or tax advisor to discuss ways to minimize or eliminate estate taxes.

Can the beneficiary manage an investment account?

Not everyone may be comfortable managing an investment account on their own. If you think your beneficiaries may prefer not to take on the responsibility, consider placing the account in a trust or arranging for professional management.

If one of your beneficiaries is a charity, donating complex assets such as certain types of securities may have tax advantages for both parties. In addition, donor-advised funds can help the charity manage such assets if it lacks the expertise. For more on this topic, see Strategic giving: thinking beyond cash donations in Fidelity Viewpoints®.

Next step

Reviewing & updating your estate plan
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transfer on death (TOD)

a provision of a brokerage account that allows the account’s assets to pass directly to an intended beneficiary; the equivalent of a beneficiary designation

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joint ownership with right of survivorship

ownership arrangement in which two or more individuals own the whole of an asset equally; when one owner passes away, assets pass to the other joint owner(s)

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tenants by entirety

form of joint ownership of an asset by spouses in which both own the asset equally; upon death of one spouse, ownership passes automatically to the surviving spouse

Questions?

The tax information and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
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