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North Carolina Adopts Uniform Transfer On Death Security Registration Act
Estate Planning Bulletin

11.01.2005

 
The North Carolina legislature recently adopted The Uniform Transfer on Death Security Registration Act, which will now enable individuals to designate a beneficiary or beneficiaries of individual stocks and securities or investment accounts holding multiple securities to receive these assets directly outside of probate upon the death of the owner of the security or investment account. The Act is effective October 1, 2005.

Under the Act, an owner of a security or an investment or brokerage account will be able to designate one or more persons to be the beneficiaries of the security or investment account at the owner’s death by titling the security or account with the abbreviation TOD (for Transfer on Death) or POD (for Pay on Death). (For example, “John S. Brown TOD (or POD) for John S. Brown, Jr.). Upon the security or account owner’s death, the security or investment account would then be transferred directly to the named beneficiary or beneficiaries upon proof of the security or account owner’s death (presumably by the production of a certified copy of the owner’s death certificate), without the requirement of any other documentation which would normally be required if the security or account passed to the beneficiaries under the decedent’s Will and the security or account was subject to probate. The Act also allows two or more joint owners of a security or investment account held as joint tenants with right of survivorship to designate TOD beneficiaries upon the death of the last joint owner.

The Act does not affect the ownership and control of the security or investment account during the owner’s lifetime, and the owner retains complete control over the TOD registered asset, including the ability to change the beneficiaries of the TOD asset.

The Act provides that if there are multiple beneficiaries named for the TOD registered securities and if one or more of these beneficiaries predeceases the owner (or the last surviving owner of a joint account), then upon the death of the sole owner or the last to die of the multiple owners, the ownership of the TOD registered securities passes to the beneficiary or beneficiaries who are then living (and not to any pre-deceased beneficiary’s children or descendants). If no beneficiaries survive the last account owner, then the TOD asset must be paid to the estate of the last surviving account owner.

Although the TOD security or investment account is not subject to probate, these assets are still liable for the debts of the owner at death to the extent there are not sufficient assets in the owner’s probate estate to cover the deceased owner’s debts. In addition, the TOD assets will also be liable for federal and state estate taxes since the security or account owner retains ownership and control over the assets until his or her death.

Although the use of TOD or POD registration for clients’ securities and investment accounts may now be appealing as a relatively simple way to transfer assets to family members at death outside of probate, clients should be cautioned that before designating their stocks or investment accounts in such a manner, they should consult with their estate planning attorney to ensure that such registration is consistent with their overall estate plan and would not conflict with their plan of distribution to their family members. As pointed out above, a TOD registration naming the security or account owner’s children as beneficiaries would exclude any descendants of a pre-deceased child from receiving the deceased child’s share of the TOD assets, which is normally contrary to the wishes of most clients. TOD registration would also not be appropriate for clients who wish to retain these assets in trust for family members or who may have concerns about the outright receipt of these assets by beneficiaries upon the client’s death. Finally, the responsibility for payment of any federal and state estate taxes on TOD assets should be properly addressed in the client’s Will to ensure that the beneficiaries of the TOD assets are the ones required to bear the burden of the payment of the estate taxes on the TOD assets and not the other beneficiaries of the estate who are not receiving the TOD assets from the decedent.

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