A "transfer on death" (TOD) account is one where a beneficiary or beneficiaries is/are named. The purpose often times is to "avoid probate." Unfortunately, this tool is often times misunderstood and far less valuable than some may realize.
First, the TOD account does not completely "avoid" probate in the State of Connecticut. Any amount passed via TOD will be included in the estate of the individual who owned the account when they passed away (the "decedent"). Even if the decedent doesn't have an estate that will end up being subject to taxation, a Connecticut Estate Tax Return will need to be filed, and if it is a non-taxable estate, the return is filed with the Probate Court.
Second, the TOD account does not protect the individual in the event of incapacity. This means that the account does not transfer to anyone to use for the account owner's benefit if the account owner becomes disabled. Many financial advisors and even some attorneys try and suggest that a power of attorney fills this gap, but Powers of Attorney are not a full-proof incapacity protection tool either as they do not have to be accepted by the financial institution.
Third, TOD accounts do not protect the beneficiaries from divorce, frivolous lawsuits, etc. if the beneficiary is named outright.
If stronger incapacity protection and/or protection for beneficiaries is a concern, the account owner may consider discussing a revocable living trust with an estate planning attorney before relying on TOD. It may avoid major problems down the road.
If you would like to discuss a trust with a CT trust attorney, or TOD accounts with a CT probate attorney, feel free to contact us at (203) 651-5521.