Matthew S. Payne is a Chicago-based attorney with a 20-year record of success in civil litigation, real estate law and estate planning.

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Understanding the role of TOD accounts in avoiding probate

On Behalf of | Oct 19, 2022 | Estate Planning

When it comes to estate planning in Illinois, many have a passing familiarity with the concept of “transfer on death” (TOD) accounts. The idea behind such financial vehicles is that they permit account assets to pass directly to a pre-determined beneficiary upon the account owner’s death, sidestepping the probate process altogether.

Fundamentals of TOD accounts

There are several types of financial instruments and accounts on which owners can place a TOD designation as part of their estate plan strategy, including:

  • Mutual funds
  • Stocks and bonds within brokerage accounts
  • Deeds to real property

Once such a decision is made, named beneficiaries need only provide the relevant investment firm or brokerage with proof of the account owner’s death in order to receive the assets, steering clear of a potentially lengthy and cumbersome probate process entirely.

Potential pitfalls to avoid

It is worth noting, however, that those who have established TOD accounts for some or all of their investments need to remain vigilant in terms of adjusting beneficiaries if and when circumstances change and ensuring that family members — particularly in the case of blended families — are not disinherited contrary to the account holder’s overall estate plan priorities.

While a TOD account can be a valuable tool for achieving estate disposition goals and objectives, that is not to say that the use of such vehicles eliminates the need for a will, trust, or other mechanisms. Because TOD accounts cannot be used to address who will receive assets such as checking or savings accounts, certificates of deposit, vehicles, personal belongings, or other items upon death, the development of a comprehensive estate plan is the best way to guarantee that resources go to the intended recipients, ideally without the need for expensive, time-consuming probate proceedings.