This is part of a recent post on the tax strategies board
As the executor, I contacted the financial institutions (Vanguard, Fidelity, and TD Ameritrade) to get everything started (and send death certificate), but no beneficiary received any money until each beneficiary contacted the institution and went through their process to create an account. I did everything I could to make things as easy as possible for my siblings. There was a lot of hand holding involved.
The bolded part concerns me. I have never thought of or heard of this complication before.
Like most people, I have TOD’s set to on my taxable accounts and Beneficiary Designations on my TIRA’s and Roth’s. Since I have two people designated, can lack of action by person A cause a delay to Person B getting their portion of an account?
I am the person who posted that quote on the tax strategies board. Although my father’s accounts were TOD, none of the financial institutions, including brick and mortar banks, released ANY money to any of his beneficiaries until ALL beneficiaries filled out paperwork or called or visited in person or set up on-line accounts. I believe the reason they do this is so the accounts are funded on the same day with the exact same amount of money, stocks, funds, etc.
The only money that was immediately released was life insurance. In that case, as the executor, I was able to fill out all the paperwork for my siblings. I did need to know their birth dates, social security numbers, current addresses and phone numbers.
I had one sibling who had a job where they could not make personal phone calls during business hours. He had to take time off from work and we all had to wait until he was able to take time off to set up his accounts.
So, yes, it can be an issue for all beneficiaries if one is slow about taking care of business.
I am the person who posted that quote on the tax strategies board. Although my father’s accounts were TOD, none of the financial institutions, including brick and mortar banks, released ANY money to any of his beneficiaries until ALL beneficiaries filled out paperwork or called or visited in person or set up on-line accounts. I believe the reason they do this is so the accounts are funded on the same day with the exact same amount of money, stocks, funds, etc.
The only money that was immediately released was life insurance. In that case, as the executor, I was able to fill out all the paperwork for my siblings. I did need to know their birth dates, social security numbers, current addresses and phone numbers.
I had one sibling who had a job where they could not make personal phone calls during business hours. He had to take time off from work and we all had to wait until he was able to take time off to set up his accounts.
So, yes, it can be an issue for all beneficiaries if one is slow about taking care of business. - holhealthprac
Thanks, this is a BIG deal. Lets say one beneficiary is in a coma? Or worse he has died, no will, so his half will eventually go into his estate but the other beneficiary has to wait out that lengthy probate process.
This is reason enough for me to split my accounts and only have one beneficiary on a given account.
In the case of a TOD with multiple heirs, its likely the heirs become partners in the account until it is split. All must agree before institution can do anything.
This is reason enough for me to split my accounts and only have one beneficiary on a given account.
Or do it all via the will where the assets are split among the beneficiaries, or even a trust. This would give the Executor the ability to sell whatever is in the account and give everyone cash, or to transfer shares to each account separately similar to giving a gift of shares which is doable from a brokerage account.
To me, though, splitting the accounts and then ensuring they each always have the same amount in them is too much like work. And I’ve seen first-hand where having everything pass via TOD or beneficiary designation can cause all sorts of unintended and awful consequences. That’s something we have promised our children that we will not do to them.
This issue is institution specific so perhaps a reason to either shop around or at least inquire with your current company.
I would say that such a restriction is probably uncommon. I work for a(n) (undisclosed) brick and mortar and that is not our policy, it was not the policy at my prior company either.
My father had a 401K at Fidelity, a traditional IRA at Vanguard, and a taxable account at TD Ameritrade. We all had to create accounts at those institutions before any of the accounts were funded. My father had accounts with two brick and mortar banks. One of the banks required us each to visit in person, but made an exception for a sibling who lived many hours away. They had to fill out paperwork and have it notarized. Once they had everyone’s paperwork, they mailed out checks to each of us. The other bank mailed out paperwork to all of the beneficiaries and sent us checks once they had received everyone’s notarized paperwork.
We were not given any choices about how to handle anything. We followed the institutions’ processes and waited until all of the beneficiaries did so.
Although all of my father’s accounts were TOD, I ended up loaning the estate $20K from my personal funds to pay bills for which I was reimbursed once his house was sold.
In the case of a TOD with multiple heirs, its likely the heirs become partners in the account until it is split. All must agree before institution can do anything.
In our case, the accounts were frozen. The institutions did not give us any choices.
Very odd. I’ve worked with about a dozen entities (brokerage and annuity) and the claimants have never been required to wait for all claims to be submitted before paying any proceeds. Seems odd that Vanguard and Ameritrade would have such a requirement. Seems that such would place the institution in legal jeopardy if a claimant wanted to screw the other benes by never completing their process - or simply dragging their feet.
holhealthprac: “My father had a 401K at Fidelity, a traditional IRA at Vanguard, and a taxable account at TD Ameritrade. We all had to create accounts at those institutions before any of the accounts were funded. My father had accounts with two brick and mortar banks. One of the banks required us each to visit in person, but made an exception for a sibling who lived many hours away. They had to fill out paperwork and have it notarized. Once they had everyone’s paperwork, they mailed out checks to each of us. The other bank mailed out paperwork to all of the beneficiaries and sent us checks once they had received everyone’s notarized paperwork.”
I am surprised to read this, especially if you opened accounts at the mutual fund or brokerage house.
I do not recall my spouse, as executor of a sibling’s estate, needing to have each payee complete paper work before funds were moved. Best as I recall, the money for each beneficiary moved as he or she completed third respective paperwork. But I was not executor and this was roughly 10+ years ago.
I assume there is some sort of process that is triggered after a period of time if all beneficiaries can not be contacted or if one refuses to cooperate.
As we waited for access to the accounts I watched balances fluctuate. I watched stock prices go up and down and dividends pay out. Savings accounts earned interest.
Is it possible this is state specific? I am in PA and there is inheritance tax due on most estates unless they are very small. Some of the institutions required us to send paperwork to PA to acknowledge that we were on the hook to pay inheritance tax. Perhaps the institutions have a legal requirement to the state of PA to verify/identify all beneficiaries and their contact information?
Maybe some of these requirements are new or processes were changed due to Covid with employees working from home?
Perhaps this isn’t typical, but it happened to us.
And I’ve seen first-hand where having everything pass via TOD or beneficiary designation can cause all sorts of unintended and awful consequences. That’s something we have promised our children that we will not do to them. - hawkwin
Thank you for that perspective. My intent is to use a will to transfer 100% of real estate and personal property on one heir. No joint ownership of anything. That one heir can decide when, if, and how much to sell any of that part of my estate without having to get the approval of any other person. Sole discretion avoids conflict.
My investment accounts seem simpler, easy to split, fungible. But I want the custodian to do it for each heir and not have the process delayed to one heir by the lack of cooperation from another, hence my question to the board.
Do any of your experiences with bad outcomes or unintended consequences fit into the scenario I laid out? If so, I would appreciate some detail to reflect in my planning. Thx.
Apologies, my prior post attributed the observation to hawkwin. It should have been 2gifts.
I wish TMF had an edit feature like 10,000 other posters have said before me.
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And I’ve seen first-hand where having everything pass via TOD or beneficiary designation can cause all sorts of unintended and awful consequences. That’s something we have promised our children that we will not do to them. - 2gifts.
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Thank you for that perspective. My intent is to use a will to transfer 100% of real estate and personal property on one heir. No joint ownership of anything. That one heir can decide when, if, and how much to sell any of that part of my estate without having to get the approval of any other person. Sole discretion avoids conflict.
My investment accounts seem simpler, easy to split, fungible. But I want the custodian to do it for each heir and not have the process delayed to one heir by the lack of cooperation from another, hence my question to the board.
Do any of your experiences with bad outcomes or unintended consequences fit into the scenario I laid out? If so, I would appreciate some detail to reflect in my planning. Thx.
This issue is institution specific so perhaps a reason to either shop around or at least inquire with your current company.
I would say that such a restriction is probably uncommon. I work for a(n) (undisclosed) brick and mortar and that is not our policy, it was not the policy at my prior company either. - hawkwin
Oh, I plan to check with the institution, Vanguard in my case. I just wanted to collect some other background and perspective here before doing so.
Indeed, though the problem with an unwilling and recalcitrant bene would be the same regardless of state.
Back when we had a state inheritance tax (about 10 years ago), we had to complete additional paperwork but I still don’t think we held onto all of the assets until all benes came forward - and the old instructions our process would not seem to suggest such was a requirement. Paying the tax was the responsibility of the personal representative, an heir, trustee, a joint owner, or another transferee and not the financial institution.
Signatures - If the estate is the beneficiary, the personal representative should sign the Consent to Transfer. If a trust is the beneficiary, the trustee should sign the Consent to Transfer. For jointly held property and payable on death accounts, all joint owners or beneficiaries must sign.
Looks like we at least had a requirement that all benes must sign this state form to consent to transfer, even if they had not necessarily completed any bene paperwork.
This would strongly suggest to me that it is likely connected to any state inheritance tax.
My investment accounts seem simpler, easy to split, fungible. But I want the custodian to do it for each heir and not have the process delayed to one heir by the lack of cooperation from another, hence my question to the board.
Then I don’t understand why you don’t just use your will to specify that the account be split among the various heirs and let the Executor take care of it. This would not depend on all the heirs doing anything. If you want them to get shares of each investment, then as long as the number of shares is evenly divisible by the number of heirs, they shares can be transferred to each one as they get whatever paperwork is required done.
I am not a fan of TOD accounts, though we do have beneficiaries on our IRA’s. This just reeks of DIY estate planning, and my experience with that has been horrendous. We actually have all our assets in trust except for the IRA’s, so the kids won’t have much that has to be distributed.
Do any of your experiences with bad outcomes or unintended consequences fit into the scenario I laid out? If so, I would appreciate some detail to reflect in my planning. Thx.
No, my experience mostly had to do with Medicaid and an estate where everything except a piece of real estate and less than $20 was TOD. It was a disaster.
Thank you for that perspective. My intent is to use a will to transfer 100% of real estate and personal property on one heir. No joint ownership of anything. That one heir can decide when, if, and how much to sell any of that part of my estate without having to get the approval of any other person. Sole discretion avoids conflict.
It also comes with its own complications.
A Will can be contested.
A Will is not exempt from probate which can lock up the assets for a long time.
A Will is not a private transfer of wealth. Depending on the size of your estate, your heir many not want their windfall to be public record.
Any and all tax implications are suffered by that one heir, with no ability to share such with any other intended recipients.
That one heir is under no obligation to follow your wishes after your passing.
If your goal is to make the money available to a single individual and you have no care what they do with it after you are gone, you are likely better off retitling your real estate under TOD and make sure the rest of your estate (anything outside of a trust or TOD setting), is below your state requirement for probate - usually allowing one to file a Small Estate affidavit or other similar, quicker process.
I’ll give another perspective. A relative died in 2021, leaving a large TDAmeritrade TOD account with with his two adult sons (about 60 years old) as beneficiaries. One son has two of his own adult children. That son decided to disclaim (the TOD was set up to be “per stirpes”) so his two adult children could split his portion. The whole thing was done and settled within 14 days of death. This estate plan worked flawlessly with an absolute minimum of any hassle. To be fair, it was well planned and everyone was on the same page. And everyone set up TDAmeritrade accounts quickly, as requested, once it became known that this is what was required. The adult son who disclaimed made sure that “per stirpes” was in there when the grandfather set up the account…his plan was to retain the option to inherit OR to disclaim his portion to his own children but not have to decide until the grandfather’s death.
Anyway, it worked perfectly and TDAmeritrade was fabulous. With the proper planning and the proper people, Transfer On Death is a great estate planning tool.