Transfer on Death (TOD) for Vanguard taxable accounts

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Hat
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Transfer on Death (TOD) for Vanguard taxable accounts

Post by Hat » Sun Aug 24, 2014 11:47 am

I live in Texas, am not married, and wish to designate TOD beneficiaries for my Vanguard taxable account.

Both Nolo's Estate Planning Basics and Make Your Own Living Trust books have a statement that TOD is available in every state except Texas.

After talking to Vanguard twice about this issue, they are unaware of any restrictions on Texas residents using their Transfer on Death Plan Kit.

Does anyone have experience or guidance on this?

Lafder
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Lafder » Sun Aug 24, 2014 1:30 pm

Since the TOD forms are set up through Vanguard which is not based in Texas, why would it matter if that is indeed a Texas rule? Isn't Vanguard responsible for the laws in it's own state of business? ((I am not a professional on this issue, so this is just my interpretation))

Upon your death, all Vanguard would need is a certified copy of your death certificate and instructions/ ? forms filled out to transfer the funds to the payee.

You are aware that TOD accounts are passed outside of the will/probate ?

Here is a NOLO link supporting what you are saying http://www.nolo.com/legal-encyclopedia/ ... 31945.html and here is another link http://www.sec.gov/answers/todreg.htm It seems Texas and Louisiana are 2 of the few states to not allow TOD.

If Vanguard is not aware of it, and they are the ones that would do the transfer upon death, it seems it may not be an issue. I would imagine they have 1000's of TOD accounts for owners that live in Texas.

But I agree I would want a more definitive answer.

lafder

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Mel Lindauer
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Mel Lindauer » Sun Aug 24, 2014 1:40 pm

Hat wrote:I live in Texas, am not married, and wish to designate TOD beneficiaries for my Vanguard taxable account.

Both Nolo's Estate Planning Basics and Make Your Own Living Trust books have a statement that TOD is available in every state except Texas.

After talking to Vanguard twice about this issue, they are unaware of any restrictions on Texas residents using their Transfer on Death Plan Kit.

Does anyone have experience or guidance on this?
It is my understanding that Vanguard no longer allows TOD to be added to taxable accounts unless it's been grandfathered. Has that policy changed recently?
Best Regards - Mel | | Semper Fi

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Steelersfan
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Steelersfan » Sun Aug 24, 2014 2:13 pm

Page 2 of their Transfer on Death Kit says they do, but only for individual accounts.

http://www.vanguard.com/pdf/bdbp.pdf?2210039149

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by ww340 » Sun Aug 24, 2014 2:20 pm

We recently transferred to Vanguard, and they allowed us to set up TOD on our individual accounts, but not our joint accounts.

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by tomd37 » Sun Aug 24, 2014 3:08 pm

I don't mean to hijack the original post, but the last response from ww340 raises a question that might be applicable to others reading the original post and its responses. We have a taxable investment account at VG held in our names jointly. When the first of us passes, could the survivor then name our daughter as TOD beneficiary? I could ask VG about this but maybe someone on the forum already knows the answer.
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by dodecahedron » Sun Aug 24, 2014 3:16 pm

tomd37 wrote:I don't mean to hijack the original post, but the last response from ww340 raises a question that might be applicable to others reading the original post and its responses. We have a taxable investment account at VG held in our names jointly. When the first of us passes, could the survivor then name our daughter as TOD beneficiary? I could ask VG about this but maybe someone on the forum already knows the answer.
I am sure this should be fine. My late husband and I had a joint account at Vanguard before his death. After his death, Vanguard retitled the account as an individual account in my name, at which point I was easily able to designate TOD beneficiaries.

In essence, an account held jointly by a couple loses its identity as a joint account after the death of one of the joint tenants.

More generally, there is a special division of Vanguard for inheritor services, which I found exceptionally helpful in dealing with transition issues.

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fire5soon
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by fire5soon » Sun Aug 24, 2014 3:23 pm

My understanding is TX (and LA) hasn't formally adopted the TOD designation but many firms (Vanguard, Fidelity, etc) will allow TX residents to add the TOD designation and will pay to those bene's as you designate. I suppose it could be contested, but I've never seen it happen.

Here's some info on how the SEC sees it...

http://www.sec.gov/answers/todreg.htm

http://uniformlaws.org/Act.aspx?title=T ... tion%20Act
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by runner9 » Sun Aug 24, 2014 3:45 pm

tomd37 wrote:I don't mean to hijack the original post, but the last response from ww340 raises a question that might be applicable to others reading the original post and its responses. We have a taxable investment account at VG held in our names jointly. When the first of us passes, could the survivor then name our daughter as TOD beneficiary? I could ask VG about this but maybe someone on the forum already knows the answer.
Yes, this is true and is what my surviving parent just did. When a JTWRS has one party die, Vanguard sent a packet to complete, then created a new account number with just the surviving half's name of it. The packet had space for designating beneficiaries, etc.

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by HueyLD » Sun Aug 24, 2014 3:57 pm

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Last edited by HueyLD on Sat Feb 07, 2015 2:32 pm, edited 1 time in total.

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Mel Lindauer » Sun Aug 24, 2014 4:17 pm

Steelersfan wrote:Page 2 of their Transfer on Death Kit says they do, but only for individual accounts.

http://www.vanguard.com/pdf/bdbp.pdf?2210039149
Thanks for that distinction. Our accounts are joint ownership, but we were able to get the POD on the joint accounts before Vanguard discontinued doing it on joint accounts, so we're grandfathered.
Best Regards - Mel | | Semper Fi

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Alan S. » Sun Aug 24, 2014 8:09 pm

Schwab and T Rowe Price have no problem offering a TOD on joint accounts. This is only operative following the second death. It provides continued probate avoidance if the second death occurs closely following the first death before the survivor has time to submit death certs, change to an individual account and name a new TOD on the individual account.

Anyone know why VG will not provide TOD on joint accounts, particularly since they apparently did in the past?

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Gill » Sun Aug 24, 2014 8:22 pm

Alan S. wrote:Anyone know why VG will not provide TOD on joint accounts, particularly since they apparently did in the past?
I would imagine it puts them in a position of having to determine the order of deaths when that fact is unclear.
Gill
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Alan S. » Sun Aug 24, 2014 10:45 pm

The order of deaths would not matter with respect to the TOD, only that both are deceased. All that would be required is documentation by death certs showing both JTs are deceased and change of registration papers to the transferee. Must be something else of concern to VG.

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by investor4life » Sun Aug 24, 2014 11:23 pm

There was a recent related thread on this forum that may be helpful: http://www.bogleheads.org/forum/viewtop ... 9#p2123414

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Bustoff » Mon Aug 25, 2014 6:19 am

Mel Lindauer wrote:Our accounts are joint ownership, but we were able to get the POD on the joint accounts before Vanguard discontinued doing it on joint accounts, so we're grandfathered.
Just curious, what are the advantages of a POD on joint accounts?
Wouldn't a joint account automatically go to the surviving account holder?

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runner9
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by runner9 » Mon Aug 25, 2014 7:02 am

Benefit would be if both account owners die together, or close together such as in a car accident, etc.

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Mel Lindauer » Mon Aug 25, 2014 8:27 pm

runner9 wrote:Benefit would be if both account owners die together, or close together such as in a car accident, etc.
Exactly.
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Gill » Mon Aug 25, 2014 8:30 pm

Alan S. wrote:The order of deaths would not matter with respect to the TOD, only that both are deceased. All that would be required is documentation by death certs showing both JTs are deceased and change of registration papers to the transferee. Must be something else of concern to VG.
Yes, it would if each joint owner had different beneficiaries!
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Alan S. » Mon Aug 25, 2014 9:34 pm

The TOD beneficiary is the joint decision of both owners, so each owner cannot have different beneficiaries. Should the surviving owner want to change the beneficiary after the first death, they can easily and quickly do so. Some firms might allow a secondary TOD in the event the TOD beneficiary passes prior to the second death of the owners.

Summary of typical TOD activity:
1) First owner passes - account ownership changes to second JT. Firms then require a new account to be opened that will require a new TOD to be named. The TOD on the original account is effectively voided when that account is terminated.
2) Second owner passes - account goes to the TOD named on the new account.

Therefore, should the second owner also pass during the interval between the death of the first owner and before the second owner creates a new account with new TOD is the interval where a probate situation is avoided. But if no TOD is allowed on joint accounts, and the second JT passes before creating a new account, the funds become subject to probate, possibly triggering a 1040 filing by the estate of the second JT. Funds would pass to will beneficiary, or per state intestate provisions.

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Hat
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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Hat » Mon Aug 25, 2014 10:49 pm

Thanks all for the responses.

It seems the consensus is that Vanguard would handle a Texas resident's TOD like any other and issues would be unlikely.

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by PinotGris » Fri Oct 31, 2014 9:16 pm

I read through this thread and am not sure if this question was answered.

We are looking into setting up a living trust. We have a will. One attorney suggested we should retitle our assets so they are more evenly divided. Currently my husband's IRA s are 75% of our assets. We have now made our taxable account with Vanguard titled individual on my name to even out some.

so my individual taxable account has my husband as 100% primary beneficiary.

But if i die first he would automatically inherit this thrpugh the will. So should i be naming our children as equal beneficiaries instead?nor should i put them down as secondary beneficiaries?

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by littlebird » Fri Oct 31, 2014 10:01 pm

:?:
Alan S. wrote:Schwab and T Rowe Price have no problem offering a TOD on joint accounts. This is only operative following the second death. It provides continued probate avoidance if the second death occurs closely following the first death before the survivor has time to submit death certs, change to an individual account and name a new TOD on the individual account.

Anyone know why VG will not provide TOD on joint accounts, particularly since they apparently did in the past?
Somewhere I picked up the idea that when there is a joint account TOD and the survivor changes the beneficiary, an original beneficiary has been known to claim that the original designation was an implied contract between the joint owners which became irrevocable on death of the first to die, the way certain trusts do. Vanguard didn't want to get involved.
( did I make this up?) :?:

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Re: Transfer on Death (TOD) for Vanguard taxable accounts

Post by Alan S. » Fri Oct 31, 2014 11:54 pm

littlebird wrote::?:
Alan S. wrote:Schwab and T Rowe Price have no problem offering a TOD on joint accounts. This is only operative following the second death. It provides continued probate avoidance if the second death occurs closely following the first death before the survivor has time to submit death certs, change to an individual account and name a new TOD on the individual account.

Anyone know why VG will not provide TOD on joint accounts, particularly since they apparently did in the past?
Somewhere I picked up the idea that when there is a joint account TOD and the survivor changes the beneficiary, an original beneficiary has been known to claim that the original designation was an implied contract between the joint owners which became irrevocable on death of the first to die, the way certain trusts do. Vanguard didn't want to get involved.
( did I make this up?) :?:
You could be right, the issue for VG could be that or something similar. But a firm that does not accept legal exposure that other firms are willing to accept can be expected to lose assets to those other firms. If certain states pose added exposure, a firm could limit offering TODs on joint accounts in those problematic states. But VG apparently will not offer this anywhere.

The general solution for joint tenants who are not comfortable with the surviving tenant's decision regarding beneficiaries is to either leave the account to a trust for retirement plans or put the assets in a trust that becomes irrevocable upon the first death for other assets.

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