As part of our ongoing series on the advantages and disadvantages of avoiding probate in New York, our New York City estate planning attorney publishes this post on naming beneficiaries for stocks and bonds.
Most recently we discussed on our New York Probate Lawyer Blog the importance of naming beneficiaries to retirement accounts. Unfortunately, it not unusual for complications to arise -- including instances where the name of an ex-spouse is left on an account -- particularly in cases of sudden death during middle age.
Avoiding probate has its advantages -- as we have discussed, keeping an estate settlement out of court can speed the process and keep it private. Whereas, a probated estate will be subjected to the court's time frame and the public process inherent in most court cases. However, avoiding probate does not mean you will not need a probate attorney; indeed, an estate planning lawyer may be even more critical in cases where a person desires to structure an estate capable of bypassing the safeguards of the court process.
Like naming beneficiaries on retirement accounts, naming beneficiaries of stocks and bonds is another simple way to transfer assets outside of probate court. The advent of IRAs, 401(k) plans and self-directed brokerage accounts has given rise to laws in 48 states (Louisiana and Texas are the laggards) that deal with transfer-on-death registration. Much like the payable-on-death bank accounts we previously discussed, transfer-on-death registration permits you to own stocks in what is known as "beneficiary form," which permits their transfer to a named beneficiary at the time of your death.
One potential drawback is that your broker may not permit you to name an alternate beneficiary. In other cases, your broker may not offer the service. Joint stock accounts can have T.O.D. benefits but the co-owner must have rights of survivorship. What that means is that the account will not transfer to the named beneficiary until both account holders are deceased.
There are also rights of spouses under state law, which cannot be bypassed using T.O.D. And complications apply to naming a child under 18 as beneficiary -- a guardian and an adult money manager may be needed to be appointed to make sure a minor has sufficient assistance in managing the funds.
In cases where a beneficiary dies before you do, or there is otherwise an absence of named beneficiary, the stocks would typically be distributed under your Will's "residuary clause," which names a beneficiary to inherit everything not specifically mentioned in the Will.
Other challenges exist in using T.O.D. registration. And your estate planner is best suited to assist you in determining whether such a transfer is right for you. Instances in which a bond is not easily divisible, or the need exists to name more than one beneficiary, are examples of instances where other arrangements may best serve an estate.