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Idaho Estate Planning is a TOD Account a Good Idea

By Lane V. Erickson, Idaho Estate Planning Attorney

Most estate planning is very simple and easy to understand. However, sometimes there are some complex parts of estate planning that need some explaining in order for most individuals to understand what they are and how they work. The basic estate planning that most people recognize and understand includes a last will and testament, a durable power of attorney, a living will, and a power of attorney for health care. Most people also understand at least some basic information about trusts and how they work. What sometimes confuses people when it comes to estate planning are discussions about things like TOD accounts. As the premier estate planning firm in Idaho we take pride in our ability to make complex estate planning options easy for our clients to understand so they can decide whether and how to use these options as part of their estate planning.

At the Racine law office we use a team approach when it comes to providing estate planning for each of our clients. Our goal is to create a customized Idaho estate plan that meets the needs of each of our clients individually given their own unique circumstances.

One of the estate planning options available for individuals is the use of a TOD account. The purpose of this article is to provide an explanation of what a TOD account is, what happens to a TOD account when a person passes away, and whether or not creditors can access a TOD account to pay estate debts and expenses. Our hope is that by providing these explanations you will have a better understanding of a unique estate planning option available to you and your family.

What is a TOD Account?

A TOD account, which is an acronym for “transfer on death” account, is a special type of an investment account recognized by Idaho’s laws. As an investment account it can be funded with stocks, bonds, mutual funds, ETFs, and other recognized investments. The account has a person who is specifically listed as the owner of the account. What makes a TOD account special is that there is usually a specific registration form that the owner uses to name a beneficiary that the investment account will pass to when the owner dies.

So far everything sounds great about a TOD account. However, there are some problems that can arise when using a TOD account. It’s for this reason that it’s important for each individual to know whether or not a TOD account is a good estate planning option for them.

For example, even though a TOD account is easy to establish, it can create problems if the right knowledge and planning aren’t included. If the beneficiary that is named is a minor aged person, which in Idaho means they are under the age of 18, that person cannot be a direct recipient of a TOD account. Rather, in order for that person to receive the TOD account, a court-supervised guardianship would have to be completed first that would allow the guardian to take control of the TOD account for that minor aged person. Once that person reaches the age of 18, the account would then be turned over to them directly.

Another way that using a TOD account in your estate planning could create a bad result is if the individual who is named as a beneficiary on a TOD account is disabled. In this instance the disabled individual may be receiving state or federal benefits for their disability. If that individual became a direct owner of an investment account through a TOD transfer, they may lose their disability benefits. It’s for these reasons that using a TOD account as part of estate planning should be something that is consciously and carefully reviewed and considered before it is included.

What Happens Upon Death With a TOD Account?

When a TOD account is used, and a beneficiary is named as the recipient of the account then things transfer quite easily. When the owner of the account passes away, the recipient or beneficiary needs to provide proof of death to the TOD account administrator which is usually a brokerage firm, or a financial adviser or some other financial institution. The TOD account administrator may require additional forms to be filled out, but once these are all done, then ownership to the TOD account is changed from the TOD account owner who passed away, to the TOD account beneficiary.

Once the account is in the name of the TOD beneficiary, that beneficiary then becomes the owner of that account and they are free to do whatever they want with that account and the investments that are in it. Often, TOD administrators will encourage the new TOD owner to keep the account with the administrator. In many instances, the wisest thing the new TOD account owner could do is leave the money in the account so it can continue to grow. Again, this is a very personal decision that should include professional advice and counsel.

Can Creditors Require a TOD Recipient to Pay Debts?

The final thing that you should understand about TOD accounts is how creditor’s claims affect these accounts. Some people believe that even if the original TOD account owner owed a lot of money to creditors, the beneficiary can take the account free and clear after the owner passes away without having to worry about paying the owner’s creditors. However, specific Idaho law prevents this from happening.

Specifically, Idaho Code 15-6-107(2) states that, “a transferee of a nonprobate transfer is subject to liability to the decedent’s probate estate for allowed claims against the decedent’s probate estate and statutory allowances to the decedent’s surviving spouse, minor children and dependent children to the extent the decedent’s probate estate is insufficient to satisfy those claims and allowances.” Essentially this means that if the original TOD account owner owed money to creditors, and the TOD account owner’s estate doesn’t have enough money, property or other assets in it so pay these debts, those creditors can seek to be paid by the TOD account beneficiary after the TOD account owner passes away.

The good news is that this liability is limited only to the amount the recipient receives as the beneficiary of the TOD account. In other words, a creditor of the original TOD account owner, can only take from the recipient the amount that was in the account. The recipient is not liable for any of the TOD account owner’s debts beyond that sum of money.

If you are thinking about using a TOD account as part of your estate planning, we are confident that we can assist you. We have helped numerous clients in the creation of their own customized estate plans, which sometimes includes TOD account transfers. We are confident that we can answer your questions and help you.

Enlist an Idaho Estate Planning Attorney to Help You

Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.

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