You can transfer stocks to a beneficiary by means of a “Transfer-on-Death” registration, also called a TOD, which was established by the Uniform TOD Security Registration Act. This allows the beneficiary to immediately take ownership of the stocks at your death, without having to go through a lengthy and costly probate. The process depends on the regulations in your state and your broker’s requirements. It’s best to consult with a lawyer for guidance to avoid possible complications for your beneficiary in the future.
TOD Designation Eligibility
Most states recognize the TOD Act as of 2013, but not all do. Some states recognize it for real estate but not securities, and some don't recognize it at all. You must find out what your state allows before you proceed. If it doesn't recognize TODs for securities, you might be able to obtain the designation through another state. According to NOLO, you can use the designation if any of the following are in a state that has approved the Act: your transfer agent's or broker's corporate office, the office registering the TOD designation, and the stock issuer.
Designating a Beneficiary
The process of naming a beneficiary depends on how you own your stocks. If you have a brokerage account, your broker might request a Transfer on Death registration request form. This form requires information such as your name and account number; the beneficiary’s name, date of birth and Social Security number; and your relationship to this individual. If you have a paper stock certificate, the transfer agent might have you send it, along with a stock power form, a letter of instruction and documents proving your identity. The agent will issue updated stock certificates with the new information.
Beneficiary Listing Format
When the process is complete, your stock records will contain your beneficiary’s name. This will appear after yours in the following format: Owner's name, TOD Beneficiary's name. For instance, Jane Smith, TOD John Doe. This informs the viewer that John Doe will assume ownership of the stocks upon the death of the current owner, Jane Smith. Although the beneficiary’s name appears on the account or certificate, this individual cannot access or control the stocks while you are alive. You retain control and can manage the stocks and change beneficiaries as you wish.
If you have a joint account, you might have to obtain a signed waiver from the co-owner before you can name a beneficiary. This type of account also has a rights of survivorship clause. This means the co-owner inherits the shares after your death and the beneficiary can only inherit when both owners are dead. A surviving co-owner has full control of the shares and can do as he wishes, including changing the beneficiary. If you wish to ensure that the person you have chosen remains the beneficiary, it is best to have an individual account.
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