You work hard to put money into your brokerage account. In some cases, you may not be able to spend the entire amount you have invested before you die. If that happens to you, you’ll want to be sure your hard-earned funds end up in the right hands.
So, what exactly does happen to the money in your brokerage account if you pass away? The answer can depend on the specifics of your account. Here’s what you need to know.
Here’s what happens if you have a joint account
In some cases, you may have a joint brokerage account, which means you and someone else, like your spouse, co-own the account. If that’s the case, the other account owner will usually just get to keep the investment account and it will become entirely theirs. But that’s not always the case.
If you are joint tenants with rights of survivorship or tenants by the entirety, then the account passes automatically to the co-owner when you die. There’s no need for it go through probate, which is the court process facilitating the transfer of assets when you die. And there’s no question about who gets the money invested. But if you are tenants in common, then you each have an individual claim to the account. Your interest in the account can be left to someone else besides the joint account owner.
You can ask your brokerage firm how you own your account with your co-owner to find out which of these types of accounts you have. This will help determine if you need to take more steps to specify who inherits, which would be the case if you own the account as tenants in common with your co-owner.
Here’s what happens if you designated a beneficiary
If you do not have a joint account that passes to the co-owner automatically, you may still be able to facilitate the quick and easy transfer of your brokerage account to someone of your choosing. You can do this if you have a transfer-on-death account.
A transfer on death provision is similar to a payable-on-death (POD) provision that applies to bank accounts. You can set up your account as a TOD account with most brokerage firms. What you’ll do is specify who gets the money after you die. You designate a beneficiary. That beneficiary will inherit automatically, and the brokerage account won’t need to pass through the probate process.
If you have a TOD account, it’s important to realize whoever you have as the beneficiary on file with your broker is the one who gets the money. This is true even if you have a last will and testament saying something else. So you’ll want to keep your beneficiary designation updated at all times. You can ask your broker how to do that.
Here’s what happens to other brokerage accounts
If you don’t have a joint account or a transfer on death account with a designated beneficiary, then your brokerage account will have to transfer through the probate process.
If you specified who will inherit it in your will, or your will names someone who inherits any property not otherwise left to someone specific, then the person who you named will get the money. For example, if your will says your son gets your house and your daughter gets anything else left behind, then your daughter would get your brokerage account. Or, you could specifically state that your daughter should inherit these funds.
If you don’t have a will, then intestacy laws set by your state will determine who inherits. These are laws for people who die with no estate plan and they distribute money to close family members.
Ideally, you’ll want to control who inherits your money, so you should consider options like a transfer-on-death account, a joint account with rights of survivorship, or creating a will so you can make sure your investments go to the person or people you care about most.
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