It’s hard enough to make the right decision on how to invest your money. But it’s actually just as important to know how to take title to your account. This is also known as “vesting.” And it’s especially important if you are an individual.
Typically, individuals who open accounts do so in their own name, and that’s a huge mistake. At the very least, these people should consider using the Transfer on Death option. I say that because if you die, your assets will be probated. That is a lengthy and costly process involving courts and lawyers fighting over who gets your money after you’re gone. Believe me, you want to avoid this if at all possible.
Now, if you have a living or family trust, you don’t have this problem. As a reminder, this is a document that spells out exactly who gets what and when. If you have a proper trust set up, you might save thousands and thousands of dollars in court costs and save your beneficiaries an enormous amount of time and frustration.
Notable Exception: Even though it’s rarely a good idea to open an asset account in your name alone, it’s great if you can open up credit accounts only in your name. This reduces your family’s liability. Nice.
You might think that if you don’t have a trust, you’re out of luck. Not true. Even if you don’t have a trust, there is a solution and an easy way to avoid probate.
Keep in mind that I’m not an attorney and you really should consult with an attorney on how to take title to your assets. But having said that, you should know about the “Transfer on Death” option, or TOD.
Exception – Like everything else, there are exceptions to the rule. One of the biggest exceptions comes into play when one spouse has debt. In this case it might be smart to keep your accounts separated.
When you take title to your accounts in this manner, you basically set up beneficiaries for your account – just like a retirement account. Most people don’t even know this option is available, which is a shame. As I said, if you are an individual and don’t have a trust, any assets held in your name alone must be probated unless they have a named beneficiary. So consider the solution of the TOD.
Why Banks and Brokerage Firms Won’t Discuss this Option
Banks and brokerage firms typically won‘t give you any advice as to how to title your accounts. They don’t want their “advisors” giving you the wrong advice and then getting sued as a result. They are probably right to be worried.
I met with a friend of mine who has a million dollar account at a huge brokerage firm here in Los Angeles. My buddy is such a large client he has a “private banker” assigned to give him service. Do you think the private banker suggested that my pal consider getting a trust? Nope. Do you think the banker suggested that my buddy open a TOD account until the trust was set up? No…it was the furthest thing from his mind.
It upsets me when people hold themselves out as professionals and then fail to deliver service in a professional manner, but there is nothing I can do about that. But you don’t have to become a victim of these unqualified “dumbkopfs.”
What you have to do is make sure, if you are a single person, to never open an account in your name alone. Make sure that if you have a retirement account, you understand the beneficiary rules. Those include naming a beneficiary. And if you have a non-retirement account, consider using the TOD designation – after consulting with your legal advisor.
If you are single, have you ever received advice on these matters from your advisor? Have you ever heard of the TOD vesting option?