Legal Definitions - Uniform Transfer-on-Death Securities Registration Act

The Uniform Transfer-on-Death Securities Registration Act (UTODSRA) is a law adopted by many U.S. states that allows individuals to name beneficiaries who will directly inherit their investment assets upon their death, bypassing the often lengthy and costly legal process known as probate.

Under UTODSRA, an owner of securities (like stocks, bonds, or mutual funds) or bank accounts can register them with a "transfer-on-death" (TOD) or "payable-on-death" (POD) designation. This designation specifies who will receive the assets when the owner passes away. A key feature of this Act is that the owner retains complete control over the assets during their lifetime; they can sell them, change beneficiaries, or cancel the registration at any time without needing the beneficiary's consent. The beneficiary has no rights to the assets until the owner's death.

Here are some examples illustrating how UTODSRA works:

• Leaving Stocks to a Child: Sarah, a retired teacher, owns a portfolio of individual stocks. She wants her son, David, to inherit these stocks directly and quickly after her passing, without the need for probate court involvement. Sarah contacts her brokerage firm and uses the UTODSRA provisions to register her stock accounts with a "Transfer on Death" (TOD) designation, naming David as the beneficiary. During her lifetime, Sarah can still buy or sell stocks, change David's designation, or name a different beneficiary if her wishes change. Upon Sarah's death, the brokerage firm will transfer ownership of the stocks directly to David, streamlining the inheritance process.

• Designating a Charity for a Mutual Fund: Mark, a philanthropist, holds several mutual funds. He wishes to leave a significant portion of these funds to his favorite environmental charity. To ensure the charity receives the funds efficiently, Mark uses UTODSRA to add a "Payable on Death" (POD) designation to his mutual fund accounts, naming the charity as the beneficiary. This arrangement means that while Mark is alive, he maintains full control over the funds, including the ability to withdraw money or change the beneficiary. When Mark passes away, the mutual fund company will transfer the assets directly to the environmental charity, avoiding probate and ensuring his charitable intent is fulfilled promptly.

• Joint Account with Contingent Beneficiaries: Robert and Emily are a married couple who own a joint brokerage account containing various investments. They want to ensure that if one of them passes away, the surviving spouse automatically becomes the sole owner. Furthermore, if both of them pass away, they want their two adult children, Lisa and Michael, to inherit the account equally. They utilize UTODSRA to register their joint account with a "Transfer on Death" (TOD) designation, specifying that the account transfers to the surviving spouse, and then to Lisa and Michael as contingent beneficiaries if both Robert and Emily are deceased. This setup provides a smooth transition of ownership, first to the surviving spouse and then to their children, without the need for probate at either stage.