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The New York State Legislature announces that investors will soon be able to pass stocks, bonds, mutual funds, and other investments directly to their heirs

Investments To Bypass Probate

Investors will soon be able to pass stocks, bonds, mutual funds, and other investments directly to their heirs avoiding the probate process (i.e., the court process by which assets pass through a Last Will and Testament). The New York State Legislature passed the "Transfer-on-Death Security Registration Act" and it was signed into law by Governor Pataki on July 26, 2005.

New York State has the largest number of residents who are required to have their investments pass through probate, a potentially expensive and time consuming process. A transfer-on-death designation is similar to a payable-on-death designation for bank accounts, which New York already permits.

Account owners will be able to designate one or more beneficiaries while maintaining full control over their accounts. The account owner has the freedom to change the beneficiary at any time simply by completing and filing a new form with the investment company. The owner may also revoke or change the account beneficiary by specifically referring to the account registration in his will.

In order to claim the account upon the death of the registered owner, the beneficiary simply has to provide proof of identity and the death certificate. The security can then be "re-registered" under the name of the beneficiary. If the owner and the beneficiary die simultaneously, under the new law, it is assumed that the beneficiary died first.

Prior to this new law, transfers of investment accounts were sometimes accomplished without court involvement through joint ownership. The downside of this form of registration has been that the ownership and control of the security is shared. Therefore, problems sometimes arose when one of the joint owners became insolvent, had poor credit, applied for Medicaid or other government benefits, became incapacitated, or no longer shared the same investment goals.

The new law does not give investors the ability to establish limitations or conditions on the transfer of such assets. Limitations or conditions can, however, be arranged by coordinating a Transfer-on-Death (TOD) registration with a properly drafted trust. Similarly, caution must be given to married couples with taxable estates who wish to take advantage of this new law but also need to engage in planning to minimize estate taxes. This situation will also likely require the coordination of a TOD registration with a properly drafted trust.

It should be noted that although brokers and mutual fund companies are not obligated to offer transfer-on-death-registrations, most are expected to do so. New York becomes the forty-eighth state to offer TOD registrations.

The new law provides that it shall take effect on January 1, 2006 and apply to registrations of securities in beneficiary form made by decedents dying on or after January 1, 2007.

Robert J. Kurre & Associates, P.C., offers legal services in the areas of Elder Law, Estate Planning and Estate Administration.

This publication does not constitute the rendering of legal advice or other professional services by Robert J. Kurre & Associates, P.C. While extreme care is taken to present the material in an accurate fashion, Robert J. Kurre & Associates, P.C. disclaims any implied or actual warranties as to the accuracy of the material and any liability with respect thereto.