They work hard to deposit money into your brokerage account. In some cases, you may not be able to spend the entire amount invested before you die. If this happens to you, you want to be sure your hard-earned money ends up in the right hands.
So what exactly does What happens to the money in your brokerage account when you die? The answer may depend on the specifics of your account. Here’s what you need to know:
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Here’s what happens when you have a joint account
In some cases, you may have a joint brokerage account, meaning you and another person, such as your spouse, are co-owners of the account. If this is the case, the other account holder will do so normally Simply keep the investment account and it will be completely yours. But that’s not always the case.
If you are Joint tenants with right of survivorship or tenants overall, then the account will automatically pass to the co-owner after your death. There is no need to go through probate, which is the legal process that facilitates the transfer of assets after your death. And there is no question as to who will receive the money invested. But if so tenants together, then each of you has an individual claim to the account. Your share of the account can be transferred not only to the joint account holder, but also to another person.
You can ask your brokerage firm how your account is managed with your co-owner to find out which of these account types you have. This will help you determine if you need to take further steps to determine who inherits. This would be the case if you and your co-owner own the account as a tenant.
Here’s what happens once you name a beneficiary
If you don’t have a joint account that automatically passes to the co-owner, you may still be able to quickly and easily transfer your brokerage account to someone of your choice. You can do this if you have a death transfer account.
A transfer-on-death provision is similar to a pay-on-death (POD) provision that applies to bank accounts. You can set up your account as a TOD account with most brokerage firms. You decide who will receive the money after your death. They name a beneficiary. This beneficiary inherits automatically and the brokerage account does not have to go through the probate process.
If you have a TOD account, it is important to be clear about who the beneficiary is on file with your broker and who will receive the funds. This applies even if your will says otherwise. Therefore, you should keep your beneficiary designation up to date at all times. You can ask your broker how to do this.
Here’s what happens to other brokerage accounts
If you do not have a joint or death transfer account with a designated beneficiary, your brokerage account must be transferred as part of the probate process.
If you specified in your will who should inherit it, or if your will names someone to inherit property that was not otherwise left to a specific person, the person you named will receive the money. For example, if your will states that your son gets your house and your daughter gets everything else that’s left, your daughter gets your brokerage account. Or you could specifically specify that your daughter should inherit these funds.
If you don’t have a will, your state’s inheritance laws determine who inherits. These are laws for people who die without an estate plan and distribute money to close family members.
Ideally, you want to control who inherits your money. Therefore, you should consider options such as a death transfer account, a joint survivorship account, or creating a will to ensure that your investments benefit the person or people you care about most.
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“Here’s What Happens to the Money in Your Brokerage Account When You Die” was originally published by The Motley Fool