Transfer on Death Accounts

by | Aug 4, 2014 | Videos, Financial Planning

We’ve had a lot of people ask us if they can make an account “payable on death”. “Payable on Death” (or POD accounts) accounts are offered by banks. When the account’s owner passes away, the intended recipient can walk into the bank with their death certificate and take ownership of the account. In the financial industry there are no POD accounts.

Why are there no Payable on Death accounts? Good question! Technically, when an account is closed, assets are sold, and proceeds are paid out. When it comes to stock, that’s probably not what the original owner’s intention would be. They would want the recipient to have ownership of the stock, not for it to be sold, taxed, and distributed.

The financial industry has created Transfer on Death accounts for those who want somebody to continue owning their portfolio of securities. Transfer on Death accounts (or TOD accounts) work similarly to payable on death accounts, but instead of the assets being paid out they are simply transferred to a new owner. This allows the recipient to retain the securities held in the portfolio. A new account will be opened with the recipient’s name and social security number. There are no taxes or capital gains involved in the transfer.

One thing to remember about Transfer on Death accounts involves the cost basis of the portfolio’s securities. When you receive stock through a Transfer on Death account, you retain the cost basis of the original owner. This could potentially involve some capital gains. If you were to inherit the securities instead, your cost basis would be their value on the day of the original owner’s death.

A Transfer on Death account may or may not be right for you. To determine this you should absolutely speak with your investment advisor.

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