Avoiding Probate With Transfer-on-Death Accounts and Registrations

Avoiding probate doesn't have to be complicated. You can take simple steps to ensure that certain types of property pass to your loved ones without going through probate court. (To learn about probate and its downsides, see Why Avoid Probate?) One of the easiest methods is to designate beneficiaries to inherit your bank accounts, retirement accounts, securities, vehicles, and real estate automatically, without probate.

(To learn about other ways to avoid probate, see How to Avoid Probate.)

Payable-on-Death (POD) Bank Accounts

Payable-on-death bank accounts offer one of the easiest ways to keep money—even large sums of it—out of probate. All you need to do is fill out a simple form, provided by the bank, naming the person you want to inherit the money in the account at your death.

As long as you are alive, the person you named to inherit the money in a payable-on-death (POD) account has no rights to it. You can spend the money, name a different beneficiary, or close the account.

At your death, the POD beneficiary just goes to the bank, shows proof of identity and proof of your death, and collects whatever funds are in the account. The probate court is never involved.

If you and your spouse have a joint account, when the first spouse dies, the funds in the account will probably become the property of the survivor, without probate. If you add a POD designation, it will take effect only when the second spouse dies.

To learn more, see Nolo's section on POD bank accounts.

Retirement Accounts With Named Beneficiaries

When you open a retirement plan account such as an IRA or 401(k), the forms you fill out will ask you to name a beneficiary for the account. After your death, whatever funds are left in the account will not have to go through probate; the beneficiary you named can claim the money directly from the account custodian. Surviving spouses have more options, when it comes to withdrawing the money, than do other beneficiaries.

If you're single, you're free to choose whomever you want as the beneficiary. If you're married, your spouse may have rights to some or all of the money.

Transfer-on-Death Securities Registration

Almost every state has adopted a law (the Uniform Transfer-on-Death Securities Registration Act) that lets you name someone to inherit your stocks, bonds or brokerage accounts without probate. It works very much like a payable-on-death bank account. When you register your ownership, either with the stockbroker or the company itself, you make a request to take ownership in what's called "beneficiary form." When the papers that show your ownership are issued, they will also show the name of your beneficiary.

After you have registered ownership this way, the beneficiary has no rights to the stock as long as you are alive. But after your death, the beneficiary can claim the securities without probate, simply by providing proof of death and some identification to the broker or transfer agent. (A transfer agent is a business that is authorized by a corporation to transfer ownership of its stock from one person to another.)

Transfer-on-Death Registration for Vehicles

Several states offer car owners the sensible option of naming a beneficiary, right on their certificate of registration, to inherit a vehicle. If you do this, the beneficiary you name has no rights as long as you are alive. You are free to sell or give away the car, or name someone else as the beneficiary. To name a transfer-on-death beneficiary, you'll need to fill out the paperwork required by your state's motor vehicles department.

States that allow transfer-on-death (TOD) registration for vehicles include:

*Wisconsin allows transfer-on-death registrations of "farm implements" such as tractors and farming machinery.

Transfer-on-Death Deeds for Real Estate

In many states, you can make a transfer-on-death deed that names someone to receive your property at your death. These transfer-on-death (TOD) deeds—called beneficiary deeds in some states—must be prepared, signed, notarized, and recorded (filed in the county land records office). A few states, like California, also require you to get the deed witnessed. A TOD deed looks like a regular deed, but has a crucial difference: It doesn't take effect until your death.

States that allow TOD deeds are: