While real estate and cash are the first assets you might think about in connection with estate planning, you should not neglect your stock portfolio. According to a 2015 Gallup poll, approximately 55% of Americans have money invested in the stock market. The law in California and many other states offers a process for transferring your stock without having to go through a formal probate process.
What is a TOD Registration?
Although stock offerings are regulated by the federal government through the U.S. Securities and Exchange Commission, the actual registration of stock ownership is handled under state law. And just about every state has adopted the Uniform TOD Security Registration Act. The “TOD” stands for “transfer on death.”
As the name suggests, a transfer-on-death registration means the owner of a security names a beneficiary to assume ownership upon his or her death. So if you own 100 shares of XYZ Corporation, you could file a TOD registration naming your daughter as the beneficiary. When you die, XYZ Corporation would then transfer the 100 shares to your daughter. The stock would not pass through your estate—i.e., under your last will and testament—as it would not be considered a probate asset.
TOD vs. Joint Ownership
A transfer-on-death registration is not the same thing as joint ownership. To modify the above hypothetical, let’s say you register ownership of the 100 shares of XYZ Corporation with your daughter as “joint tenants with right of survivorship.” Like a transfer-on-death registration, this would mean that upon your death, your daughter automatically becomes 100% owner of the stock without having to go through probate. However, unlike TOD registration, as joint tenant she would also be considered a full co-owner of the stock during your lifetime.
With a transfer-on-death registration, the beneficiary has no ownership rights until your death. You are free to sell or transfer the stock, or even revoke the TOD registration, without the beneficiary’s consent. In contrast, if you transfer the stock into a joint tenancy, you cannot unilaterally revoke the co-tenant’s interest in the security.
Other Forms of TOD Registration
California’s version of the Uniform TOD Security Registration Act recognizes several possible forms. The example above addressed the case of a sole owner naming a sole beneficiary. But there may be cases where multiple owners in an existing joint tenancy—such as a husband and wife—name a beneficiary. In this situation, the beneficiary would receive the property only after both joint tenants died.
You can also designate alternate beneficiaries under a TOD registration. For instance, you might name your daughter as primary beneficiary, with your brother as alternate beneficiary if your daughter does not survive you. California law also recognizes a “lineal descendants per stirpes” designation for alternate beneficiaries. This substitutes a deceased beneficiary’s living heirs for a beneficiary who fails to survive you.
A California Estate Planning Lawyer Can Help
Transfer-on-death registration is just one legal tool available to help minimize the time and expense of probate. A qualified San Diego estate planning attorney can advise you on the best way to use these tools. Contact the Law Office of Scott C. Soady if you would like to speak with an estate planning lawyer today.