TOD for non retirement brokerage account

[ER2B]

Wife and I thought we might ask this group how to handle this issue. The VG rep we talked to said that they used to but have stopped allowing beneficiaries or TOD transfer on death clauses on non retirement brokerage account. We'd rather not have to set up a trust to ensure that our children won't have to go to probate to access our brokerage account upon our demise. All our tax deferred accounts have beneficiaries and we've not had to worry about our taxable accounts since most of our money are in IRAs and ROTHs. But recently our VG taxable account has been growing. Now, we have not asked Fidelity about their policy. We may have to move the bulk of our taxable account there if they have a TOD policy. We have tax deferred accts with Fidelity but we'd rather stick with VG for our taxable accts.
VG rep said that another option would be to name our children as co-owners. That would give them as much authority as us and would be non reversible.

 

[pb4uski]

I wonder if you misunderstood them. They don't allow beneficiaries on joint taxable accounts, but to my knowledge allow beneficiaries on individual taxable accounts.

Naming them as co-owners is not a great idea.

 

[ER2B]

We didn't ask about individual taxable accounts. If that's the case for individual taxable accounts, then we'll have to convert to individual with spouse and children as beneficiaries. I'll give them a call tomorrow. Thank you

I wonder if you misunderstood them. They don't allow beneficiaries on joint taxable accounts, but to my knowledge allow beneficiaries on individual taxable accounts.

Naming them as co-owners is not a great idea.

 

[ER2B]

We're not making them co-owners. Maybe later in our 90s

 

[jazz4cash]

My taxable brokerage account at Fidelity includes TOD prominently in the account title. Here is what Fido says:

On a nonretirement account, designating a beneficiary or beneficiaries establishes a transfer on death (TOD) registration for the account. For an individual account, a TOD registration generally allows ownership of the account to be transferred to the designated beneficiary upon your death.
_______________
Vanguard has something called a TOD Plan:
Transfer on death plan
ADVANTAGES
Name individuals, trusts, or organizations as your beneficiaries.
Avoid probate.
______________
Google Vanguard TOD.

 

[Golden sunsets]

We're not making them co-owners. Maybe later in our 90s

Even in your 90's being a co owner would deprive them of the step up in cost basis upon your death.

 

[ER2B]

Even in your 90's being a co owner would deprive them of the step up in cost basis upon your death.

Good point about step up in basis. We need to be careful when making decisions as we have a no FAs, CPAs or lawyers policy in line with LBYM. We really have to figure out a way to add the kids as beneficiaries.

 

[ER2B]

Update: Pb4uski is right. Thanks a lot. I've learned so much from you over the years. Per VG rep, all I have to do is change ownership from joint to individual taxable account. Then I can add spouse and children as beneficiaries. All can be done online.

 

[RunningBum]

Are there any drawbacks to changing your ownership to individual? Spouse no longer has legal access?

 

[gwraigty]

Wife and I thought we might ask this group how to handle this issue. The VG rep we talked to said that they used to but have stopped allowing beneficiaries or TOD transfer on death clauses on non retirement brokerage account. We'd rather not have to set up a trust to ensure that our children won't have to go to probate to access our brokerage account upon our demise. All our tax deferred accounts have beneficiaries and we've not had to worry about our taxable accounts since most of our money are in IRAs and ROTHs. But recently our VG taxable account has been growing. Now, we have not asked Fidelity about their policy. We may have to move the bulk of our taxable account there if they have a TOD policy. We have tax deferred accts with Fidelity but we'd rather stick with VG for our taxable accts.
VG rep said that another option would be to name our children as co-owners. That would give them as much authority as us and would be non reversible.

This is a known anomaly with Vanguard regarding their joint taxable accounts. My husband and I have always been able to name our kids as beneficiaries on our joint accounts with every financial firm we've done business with. This includes Fidelity and Charles Schwab, who we've been with now for 11 and 10 years, respectively. We were formerly with TD Ameritrade and had no trouble with them over naming beneficiaries of a joint account.

I would not keep a joint account at any firm that wouldn't allow naming of beneficiaries, when other firms readily allow it. Often, you can even set them up online.

 

[gwraigty]

Update: Pb4uski is right. Thanks a lot. I've learned so much from you over the years. Per VG rep, all I have to do is change ownership from joint to individual taxable account. Then I can add spouse and children as beneficiaries. All can be done online.

Are there any drawbacks to changing your ownership to individual? Spouse no longer has legal access?

Bolding mine and +1. The account was set up as joint for a reason, so why change it because of Vanguard's ridiculous policy? I can also attest that setting up and trying to use POA at Vanguard is more problematic than at other firms. Spouse would need POA to be able to even get info much less transact in the account.

Set up a joint account at Fidelity, Schwab, or TD Ameritrade. Fill out their forms to transfer the assets. Problem solved forever.

 

[ER2B]

Are there any drawbacks to changing your ownership to individual? Spouse no longer has legal access?

None that I can think of. If something happens to me, wife as primary beneficiary should be able to have full authority. And if both of us go at the same time, children as secondary takes over. All beneficiaries will have a step up in basis.

 

[joylesshusband]

Are there any drawbacks to changing your ownership to individual?

With individual ownership, if one applies for asset-based credit and/or loan, one would enlist only the assets held in one's personal account, which are arguably of a lesser value than the total held in the joint account before the split.

 

[N02L84ER]

I think you will have to report any capital gains on your taxes the year you do the change.

 

[gwraigty]

None that I can think of. If something happens to me, wife as primary beneficiary should be able to have full authority. And if both of us go at the same time, children as secondary takes over. All beneficiaries will have a step up in basis.

Then you're not thinking of all the possibilities. What about becoming incapacitated? A relative of mine had a stroke at age 65/66 that left her partially physically paralyzed and mentally incapacitated. 10/11 years ago now, and she's still alive, amazingly.

A beneficiary has no authority before the death of the account owner. Your spouse would be prevented from accessing the funds, even if needed for your care or household bills, without a POA.

If you insist on staying with Vanguard, it would be fairer to your spouse to split the assets between 2 individual accounts, one in each of your names. It's joint now, right, so you shouldn't have a problem with that idea.

 

[ER2B]

I think you will have to report any capital gains on your taxes the year you do the change.

VG rep said that this transfer from joint to individual is a none sale event. Why would there be capital gains.

 

[ER2B]

Then you're not thinking of all the possibilities. What about becoming incapacitated? A relative of mine had a stroke at age 65/66 that left her partially physically paralyzed and mentally incapacitated. 10/11 years ago now, and she's still alive, amazingly.

A beneficiary has no authority before the death of the account owner. Your spouse would be prevented from accessing the funds, even if needed for your care or household bills, without a POA.

If you insist on staying with Vanguard, it would be fairer to your spouse to split the assets between 2 individual accounts, one in each of your names. It's joint now, right, so you shouldn't have a problem with that idea.

No problem. She has online access and if something happens to me, she goes online, hits a key on keyboard and all funds are transferred to our joint checking account. Hopefully that day doesn't happen.

 

[gwraigty]

No problem. She has online access and if something happens to me, she goes online, hits a key on keyboard and all funds are transferred to our joint checking account. Hopefully that day doesn't happen.

Sure, it's doable, but having a POA makes it legal, as long as you're still alive, that is. It's not that instant though, if you have securities that need to be sold first. There's a brief settlement period before the funds would be available for transfer.

So, if I understand you, you're going to put funds that now legally belong to both of you, in your name alone, making the funds legally only yours, just to stay with Vanguard. joylesshusband brought up one potential pitfall with doing this, at least for your spouse. And your spouse is OK with this?

Instead of making 2 individual accounts at Vanguard, and splitting the assets as close to 50/50 as possible? Or transferring out to Fidelity, where you can maintain a joint account and name your beneficiaries as you wish?

 

[ER2B]

Spouse is okay with the move but since legal is the best way to go, I'll do the 50/50 split. We already have two Roths, two IRAs, two SEPs in two brokerage firms. What's another two taxable accts. It might even make it easier to tax loss or tax gain harvest, maintain our AA and do Roth conversions since I am 3 years older than her. Hey all, thanks for everyone's input.

Instead of making 2 individual accounts at Vanguard, and splitting the assets as close to 50/50 as possible? Or transferring out to Fidelity, where you can maintain a joint account and name your beneficiaries as you wish?

 

[pb4uski]

Bolding mine and +1. The account was set up as joint for a reason, so why change it because of Vanguard's ridiculous policy? I can also attest that setting up and trying to use POA at Vanguard is more problematic than at other firms. Spouse would need POA to be able to even get info much less transact in the account.

Set up a joint account at Fidelity, Schwab, or TD Ameritrade. Fill out their forms to transfer the assets. Problem solved forever.

To be clear, qwraigty has a well-known grudge against Vanguard with respect to this issue that was discussed at length in a different thread within the last few months.

Realistically, it is only an issue if the joint account owners die simultaneously (from a legal perspective) which is possible but unlikely.

State laws vary and I suspect Vanguard has its reasons for not allowing beneficiaries on joint accounts when other financial institutions do... likely not wanting to get dragged into a legal dispute about whether or not a death was simultaneous or not.

 

[SecondCor521]

So, if I understand you, you're going to put funds that now legally belong to both of you, in your name alone, making the funds legally only yours, just to stay with Vanguard.

Emphasis added.

I'm single, so I don't have a dog in this fight (well, I do have assets at Vanguard).

Things may be different in Ohio. In my state, what was mine was hers and, in theory, vice versa. If you're married and are Idaho residents, this applies to both assets and liabilities. The only exception I am aware of is that both spouses must agree if a real estate purchase is attempted, and gifts and inheritances which are kept segregated are considered separate property. When I was divorced, the 50/50 split was done with zero regard for whose name happened to be on the title.

Part of that may be because Idaho is a community property state. I know there are other states that are also community property, but I'm not sure if that term is why it works as I described in the previous paragraph.

On a somewhat related note, I have POA on my Dad's finances, and it was pretty easy to just send a scanned copy in to Vanguard.

 

[gauss]

If it was me I would leave it in a joint account with my spouse. I would have a will designating that the kids get assets. Problem solved.

Probate in my state is a fairly simple process -- especially considering that someone could be inheriting tens of thousands of dollars.

I went through the process with my deceased father back in 2014 and realized that probate was nothing to be feared.


-gauss

 

[N02L84ER]

VG rep said that this transfer from joint to individual is a none sale event. Why would there be capital gains.

We had funded 3 taxable funds and each was joint listing Name1 and Name2 on them. We accidentally funded a 4th taxable fund and filled out the form as Name2 and Name1. When I noticed the difference years later and called to ask about getting the last fund listed as Name1 and Name2, I was told I would get a 1099 and would have to pay the tax on the reported gains. We decided not to change the name order. This was more than 15 years ago. Maybe the rep I talked to was wrong? Or, maybe what we were trying to do was different than going from joint to individual? Although I would have thought our change was less likely to generate a taxable event than going from joint to individual. Anyway, I just thought I would warn you that you might be generating a taxable event.

 

[bingybear]

Emphasis added.

I'm single, so I don't have a dog in this fight (well, I do have assets at Vanguard).

Things may be different in Ohio. In my state, what was mine was hers and, in theory, vice versa. If you're married and are Idaho residents, this applies to both assets and liabilities. The only exception I am aware of is that both spouses must agree if a real estate purchase is attempted, and gifts and inheritances which are kept segregated are considered separate property. When I was divorced, the 50/50 split was done with zero regard for whose name happened to be on the title.

Part of that may be because Idaho is a community property state. I know there are other states that are also community property, but I'm not sure if that term is why it works as I described in the previous paragraph.

On a somewhat related note, I have POA on my Dad's finances, and it was pretty easy to just send a scanned copy in to Vanguard.

Yes there 9 states with community property laws... thus less common. When we did our first trust we had everything separated as it was the only way we knew of to capture both unified exclusions. Laws changed and now that construct is not necessary to capture that. There may be other reasons since I don't use that now.

 

[bingybear]

If it was me I would leave it in a joint account with my spouse. I would have a will designating that the kids get assets. Problem solved.

Probate in my state is a fairly simple process -- especially considering that someone could be inheriting tens of thousands of dollars.

I went through the process with my deceased father back in 2014 and realized that probate was nothing to be feared.


-gauss

I haven't been thru probate, but what I hear it is all in the public record. Thus all your info as to assets are made public. I know after my dad passed that sharks were out to rip off my mom.

I think the privacy is worth something.