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What happens to your investments after you die?

Investments TOD
See how to protect your investments after you die.
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  • Many investing apps let you transfer your assets to loved ones after you pass away.
  • Most apps offer transfer on death (TOD) or trust accounts to designate beneficiaries.
  • The process will vary depending on whether it's an individual, joint, or trust investment account.
  • Make a legal will online in minutes with Trust & Will »

Investing is a great way to build wealth for the future, whether you use an online brokerage like Charles Schwab or an investment app like Acorns. But what happens to the money accrued in your accounts when you pass away?

Just as life insurance provides a payout to your beneficiaries after you die, there's a way to ensure your loved ones receive some, or all, of your investment account's assets. 

What happens to your investments after you die?

When someone dies, their investments will be handed over to any designated beneficiaries. You'll generally have three options for ensuring that your investment assets are transferred after you die:

  • Transfer on death (TOD) registration
  • Trust accounts
  • Probate process

The last option, probate, is a legal process whereby a probate court distributes your property to any heirs or beneficiaries after all debts are paid. This process can also take months to years to complete, and you usually need a will in order to qualify.

With investment and retirement accounts, you can typically set up your account so that the funds pass directly to any beneficiaries you've named. But the transfer process will vary depending on which option you choose, and whether it's an individual or joint account.

Keep reading for a closer look at your options.

Transfer on death (TOD)

Most brokerages and investment apps offer either a TOD account or beneficiary designation option, trust accounts, or both. Both the TOD and trust account options allow you to designate beneficiaries for your investment account(s).

In most cases, you can choose primary beneficiaries and contingent beneficiaries. Primary beneficiaries are the people, or entities, that are first in line to inherit your assets. Contingent beneficiaries essentially act as back-up beneficiaries just in case your primary recipients pass away before you do or refuse to accept the transfer of assets.

You should be able to complete the TOD registration option online by going to your investment app's account settings. Normally, the process is as simple as entering in the names and details of beneficiaries and selecting the amounts you'd like each person to receive.

But not all investment apps offer this option. For instance, Robinhood currently doesn't allow investors to select beneficiaries, and the app doesn't offer TOD registration. Instead, the app says it works with the executor of the estate to dissolve the account.

But other apps like Fidelity, Charles Schwab, and Vanguard offer multiple options. All three allow you to either set up TOD registration or open a trust account. 

Trust accounts

TOD is arguably the easiest option because it takes less time to set up and you can usually do so online. However, there's another option to ensure that your beneficiaries retain ownership of your investment accounts: establishing a trust.

Trust accounts allow you to pass your investment earnings to beneficiaries following your death. You can set up these accounts online by filling out an application through your investment app. When you set up a trust, you appoint a trustee, or a third party, to manage your investment account's assets and distribute them to your beneficiaries at a time you've specified.

There are generally two categories of trusts: revocable and irrevocable. Revocable trusts are legal contracts that can be modified or cancelled at any time. But with an irrevocable trust, you can't make any changes once it's been established.

You don't have to tackle this process alone, though. You can also hire an estates attorney to guide you through the trust account establishment process. If you have any questions or are unsure about anything, it's worth the time and money to consult an expert who can help you make the right decisions for your situation.

Individual and joint accounts are handled differently

The process of transferring your investments to beneficiaries is different for individual brokerage accounts and joint accounts. 

With individual investment accounts, a TOD registration designates a percentage, or all, of your investment account to beneficiaries following your death. But with joint accounts, both account holders must pass away simultaneously in order for the transfer to become effective, according to Fidelity. 

Joint investment accounts with rights of survivorship grant equal ownership to the two owners of the account. The rights of survivorship component allows 50% of the account's ownership to pass to the surviving account holder if one of you passes away. But account ownership doesn't always transfer to the other account owner if one of you dies.

With "tenants in common" joint accounts, the deceased account holder's percentage of shares goes to their estate. In other words, if your spouse passes away before you, you wouldn't get their 50% share of the investment account like you would with a rights of survivorship joint account. Instead, their shares would be legally considered as part of their personal estate/property. 

If you don't name any beneficiaries at all, or if both your primary and contingent beneficiaries pass away before you, your spouse automatically becomes your beneficiary.

If you don't have a surviving spouse, brokerages like Fidelity will pay your account's balance to your estate. Your estate basically makes up everything you own. If you don't have an estate when you pass away, or you haven't created a will or assigned any beneficiaries, your state's probate court will decide how to move forward with your case.

Should you elect beneficiaries for your investment app?

While you aren't legally obligated to do so, many investors use TOD registration, trust accounts, or other methods of beneficiary designation as a way to avoid probate.

No matter which approach you take, it's wise to make sure you establish a plan as soon as possible. It can be difficult to think about death, but most investment apps allow you to be proactive when it comes to ensuring your loved ones are financially protected after you pass away.

Rickie Houston is a wealth-building reporter at Personal Finance Insider who covers investing, brokerage, and wealth-building products.

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