Hi, so glad to have your attention and so glad to be here today to just give a three to five minute conversation around something in the estate planning world we call designation of beneficiary and or transfer on death. So this is in a way kind of a cheap man’s will because it directs the assets that you own, specific assets that you’re allowed to create a designation of beneficiary on. This form of estate planning, it actually allows the asset to avoid a probate proceeding provided the beneficiary survives you.
So what am I talking about? What assets are available to make this designation? So it is usually found on life insurance policies, annuities, the current employer or past employer’s retirement plans that they have when you signed up for the plan and or when you came into the company, they said, “hey, we have a 401k, 403b plan and contributions are going to be made to this plan. Who would you like to have listed as a beneficiary?”
IRAs, Roth IRAs, your bank accounts can also hold a beneficiary designation. Bank accounts and securities accounts at different brokerage houses – call them transfer on death or TOD. And when you see TOD on an account statement or a transfer on death designation, that is a beneficiary designation. It says, “if I die still holding this account at a various brokerage house or at my bank, then I want this person to inherit it without a probate proceeding,” which is really, really important. Nobody wants to go through a probate. I’ve had somebody describe it as filing a lawsuit against yourself.
Now, sometimes you might live in a state where designation of beneficiary is actually allowed on real estate deeds. And that means, like in Florida, they’re called ladybird deeds. In California, you can put them on your personal residence. Not every single piece of real estate that you own, but just on your personal residence here in California at this time under law. So what does that mean? That the grant deed at the county that’s registered your property actually allows you to leave a designation of beneficiary. And that permits the house and or your property in another state to be received without a probate proceeding to the next beneficiary. It’s changeable anytime. It’s not an irrevocable beneficiary.
What’s that mean? It means that the person who owns the property can change the beneficiary at any time. The property holder, our owner of the account, is the one with the power to make that designation. The asset, your house, your securities account, your IRAs, your 401k plans, all of that is still included in your taxable estate. So if you’re one of those lucky few Americans that have a total estate of over $13,990,000, that’s the amount, we can pass a state tax free. That’s our taxable estate.
Anything over that is transferred to the next heir with a 40 % tax. But if you have all assets included under a $13,990,000 estate, then all of it will be considered still in your taxable estate.
No taxes paid when you pass away because the IRS has this big credit that’s equal to the tax that would be in, would be assessed.
But let’s talk about designation of beneficiary. When somebody inherits an asset through a designation of beneficiary or TOD, some things you ought to consider. Is the person able, the beneficiary, to actually manage the asset and hold the asset? Would it do Billy, your son, any good to inherit a house that Billy can’t afford to keep? Meaning, does he have a job or is he going to inherit other liquid assets from you that will continue to pay the property taxes and utilities and ongoing long-term maintenance.
A consideration in estate planning: It’s great that he inherited a house, amazing, but if the house comes leveraged with a mortgage against it, can he qualify to have the mortgage refinanced? The banks will require him to refinance the mortgage because if the mortgage was done not in Billy’s name, but his mom and dad’s name and mom and dad pass away, the lender is going to require the new owner to qualify for that mortgage. Inheriting a securities portfolio.
Let’s talk a little bit about how people lose those monies. The average inheritance, just like a lottery winning, lasts approximately 12 to 18 months. Yeah, right? And it doesn’t even matter how much the inheritance and or lottery winnings is. Most people have trouble really hanging on to money and along for the long term.
So is there an outstanding general creditor in your heir’s life at unpaid taxes, child support payments in arrears? Is there an outstanding general creditor that would just pluck this new asset away from them and take it away from them? What is, if a beneficiary of yours is highly influenceable and the last person to speak to them wins, would they just give it away? Cause somebody asked for the money. Would they be taken advantage of or are they susceptible? How do you fix this? That you put a living trust together and that trust says, I loved you enough to put an environment together to give you someone to talk to about money, to give you a protected space so only you get to enjoy the money, that your creditors can’t force you to remove it. Most creditors, general creditors, if you don’t pay your income taxes, the IRS will take the money.
But short of that, and then can you hold the money long enough in the box to benefit you for as long as the money will last? It can be a house dropped in there, securities accounts dropped in there, and under current law, retirement plans have special rules right now. So that’s a little different and doesn’t always seamlessly cooperate with these lifetime trusts, but everything else you have can, and it’s a benefit to your beneficiaries for you to do some extra thought around this, how they get it, do they have someone to talk to about money, and at some age, do they get the right to step into that role to be in charge of their money. I wish you the best. If you have any questions, reach out, give us a ring, or write us an email, or reach out through social media. We are happy to answer your call.
Video Summary:
One of the simplest ways to keep your assets out of probate is by naming beneficiaries on accounts like life insurance, retirement plans, and even some bank or real estate holdings through transfer-on-death (TOD) designations. These tools allow assets to pass directly to the named individual when you die, bypassing the court process entirely.
However, just because it’s simple doesn’t mean it’s always the best option. If your beneficiary isn’t financially responsible or can’t afford to maintain an inherited property, they may struggle. Additionally, these assets still count toward your taxable estate and offer no protection from creditors.
That’s why many people opt for a living trust—a more comprehensive solution that can protect your legacy, control distributions, and minimize future risks.
Review your estate plan regularly to make sure your designations align with your goals and your loved ones’ best interests.
This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Tom is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Florida Veterinary Advisors and The Next Step Planning Group are not an affiliate or subsidiary of PAS or Guardian. California Insurance License #0K80141. AR Insurance License #15823672. Florida Veterinary Advisors is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. The individuals associated with Florida Veterinary Advisors do not maintain specialized licenses or qualifications for the financial services provided to veterinary professionals. 7989827.1 Exp 5/27