Avoid the Mess – Transfer on Death

WHY IS ESTATE PLANNING IMPORTANT FOR CROSS-BORDER CLIENTS?

An estate plan looks to the future and ensures that your affairs are in order and your assets are protected on your death. At Steele Wealth Management, we believe that one of life’s greatest rewards is sharing the wealth you have created according to your family values. However, it takes additional planning to help ensure that your wishes are realized so that your legacy makes a difference in the lives of your loved ones. This is the benefit of having an estate plan to control the distribution of your assets.

An estate plan for our cross-border clients must coordinate tax regulations and probate directives in both Canada and the United States. The team at Steele Wealth Management understands the complexities of estate planning in both countries, is licensed and regulated in both Canada and the U.S. and works closely with clients to translate their personal estate wishes into a strategy for their cross-border affairs.

After considering a cross-border client’s specific circumstances, we generally recommend that beneficiaries be named on investment accounts held with Raymond James (USA) Ltd. (RJLU). This article discusses using a Transfer on Death (TOD) agreement to name beneficiaries as part of a cross-border estate plan.

WHAT IS A TRANSFER ON DEATH (TOD) AGREEMENT?

Transfer on Death is a type of beneficiary designation that names who will receive the assets in an investment account at the death of the account owner. It is a legally binding agreement between you and Pershing LLC (the custodian for RJLU) where you name the beneficiaries that will directly receive your investments on your death. It is similar to naming beneficiaries on Individual Retirement Accounts (IRAs) and Registered Retirement Savings Accounts (RRSPs).

WHAT ARE THE BENEFITS OF A TOD AGREEMENT?

You Retain Control of the Assets

During your lifetime, you retain control of your investment account assets. You will continue to receive all investment income and are responsible for all taxes incurred. On death, you control who receives the investment assets in your account.

Easy to Implement

TOD agreements are available to any client with investment accounts at RJLU. You are not required to set up new accounts and the TOD agreement can be initiated quickly with minimum paperwork.

TOD Agreement Can Be Changed or Revoked

If your wishes change, you may change beneficiaries or revoke your TOD, provided you have the mental capacity at that time. Beneficiaries can be changed simply by completing a new agreement. A TOD agreement can be terminated by completing a letter of revocation.

Straightforward Transfer of Assets to Named Recipients

With a TOD agreement on the account, ownership will be passed directly to your named beneficiaries when you die. Your beneficiaries will inherit the account faster than an account that flows through an estate, all while maintaining privacy about the inheritance. The beneficiary can maintain Steele Wealth Management as their financial advisor.

Avoids the Probate Process and Maintains Privacy

Probate is a process where your executor applies to court to confirm the authority of your executors and approve the validity of your will. The executors for our cross-border clients may need to undertake probate both in a Canadian province and a U.S. state. The probate process is often lengthy, delaying the distribution of your estate assets to your loved ones. Designating beneficiaries directly using a TOD agreement allows the investment assets to pass outside your estate, thereby bypassing the probate process.

During the probate process, any document (including your will) that your executor provides to the court becomes a public document that anyone can view. Since assets with TOD agreements are not part of your estate or your will, your executor will not disclose them as part of the probate process. As such, your beneficiary designations and the details of your investments will not become public documents. This maintains privacy regarding the inheritance.

Reduces Probate Fees

Most provinces and states assess probate fees (often called Estate Administration Tax) on the value of the assets that form part of your estate and are controlled by your will. Since probate fees are levied only against assets that pass through your estate, appointing beneficiaries directly using a TOD agreement reduces or potentially avoids probate fees.

WHO CAN BE NAMED AS A TOD BENEFICIARY?

You can name your spouse, children, relatives, friends, charities, businesses, and trusts as beneficiaries. Married individuals with joint accounts can also name TOD beneficiaries who will inherit the account upon the death of the last surviving spouse. You can name multiple TOD beneficiaries and specify the percentage or per stirpes allocation to each beneficiary. It may also be prudent to name contingent beneficiaries in the event that the original beneficiaries are pre-deceased.

You may name beneficiaries located outside of the United States. For example, an individual living in Canada can be named as a beneficiary. However, to meet securities regulations, it may be required that the account is moved from our U.S. institution (RJLU) to our Canadian institution (RJL) before the beneficiary has access to the investments. The beneficiary can maintain Steele Wealth Management as their financial advisor to help with the process.

WHICH U.S. JURIDSICTIONS RECOGNIZE TOD AGREEMENTS?

Currently, all U.S. jurisdictions recognize TOD designations for investment brokerage accounts except Texas, Louisiana, and Puerto Rico. Refer to this site for the legislation status of each state or territory.

A COMPREHENSIVE ESTATE PLAN IS STILL NEEDED

A TOD agreement does not replace a will or a trust. Rather, it is one tool that we use for our cross-border clients to complement their will to contribute to a comprehensive estate plan. A TOD supersedes a will or trust for the specific accounts that have a TOD agreement. As the investments in the accounts with TOD agreements pass directly to the beneficiaries, the assets are not available for the final expenses of the estate. Death sadly includes expenses such as paying final bills, funeral costs, final tax payments, and probate on assets without named beneficiaries. It is important to ensure that there are sufficient assets in the remainder of your estate to cover the final expenses.

CONTACT US FOR HELP

At Steele Wealth Management, we’re here to make estate planning a positive, life-affirming endeavour that leads to the preservation of your family values. Consider adding TOD beneficiaries and contingent beneficiaries to your RJLU investment accounts as part of your overall cross-border estate plan. We can review your estate plan to make sure that your assets will transfer efficiently and according to your wishes. Let us know how we can help.