Estate planning involves several tools to ensure a smooth transition of assets upon death. One of these tools is the "Transfer on Death" (TOD) provision. This guide will provide a comprehensive look at TOD provisions under Vermont law and how they operate.
Understanding Transfer on Death
In Vermont, a Transfer on Death (TOD) provision allows an individual to transfer certain types of assets to a named beneficiary upon their death without going through the probate process. This applies to assets such as bank accounts, brokerage accounts, and securities. However, Vermont law does not currently allow real estate to be transferred via TOD deeds.
Transfer on Death vs. Joint Tenancy
Joint tenancy and TOD provisions both provide for the automatic transfer of assets upon death, but they operate differently. In a joint tenancy, multiple individuals share ownership of an asset. When one owner passes away, their share is automatically transferred to the surviving owner(s). A TOD provision, on the other hand, allows an asset owner to designate a beneficiary who will receive the asset upon the owner's death, without any ownership rights during the owner's lifetime.
Creditor Protections from Transfer on Death
TOD provisions in Vermont may offer some protection against the deceased's unsecured creditors. Since assets transferred via TOD provisions bypass the probate process, they may be unreachable by creditors. However, this does not apply to secured debts, such as a mortgage or a lien.
Conflicts Between Your Will and TOD Provisions
In Vermont, if a will and a TOD provision contradict each other, the TOD provision typically prevails. So, if your will states that an asset should go to Person A, but the TOD provision on the asset names Person B as the beneficiary, the asset will transfer to Person B upon your death.
Tax and Debt Implications of TOD
In Vermont, assets transferred via TOD provisions are generally subject to the same tax rules as assets transferred through the probate process. Additionally, while TOD provisions may protect assets from unsecured creditors, they do not shield assets from secured debts.
Real Estate and TOD in Vermont
As of now, Vermont law does not permit the use of TOD deeds to transfer ownership of real estate. Instead, other estate planning tools, such as joint tenancy or a living trust, can be used to avoid probate for real estate.
The Validity of Lady Bird Deeds in Vermont
Lady Bird deeds, or enhanced life estate deeds, are not recognized in Vermont. Instead, individuals looking to retain control of their property during their lifetime while designating a beneficiary upon their death may need to consider options like living trusts.
How to Establish a TOD Provision in Vermont
Establishing a TOD provision in Vermont typically involves completing a form provided by the institution that holds the asset (e.g., your bank or brokerage). It's crucial to clearly identify the asset and the beneficiary to avoid any potential disputes or confusion.
The Limitations of TOD Provisions
While TOD provisions offer a straightforward way to pass certain assets to beneficiaries, they have limitations. They do not allow for complex dispositions or offer the level of control that a trust might provide. Additionally, if the named beneficiary predeceases the owner, the asset may have to go through probate unless a contingent beneficiary is named.
Revoking a TOD Provision
A TOD provision can be revoked or changed at any time during the owner's life, as long as they are mentally competent. This process usually involves completing a form provided by the institution that holds the asset.
In conclusion, while Vermont law limits the application of TOD provisions, particularly regarding real estate, they can still be an effective estate planning tool for certain types of assets. Always consult with an experienced estate planning attorney to ensure your assets will be distributed according to your wishes.
