Thanks to an esoteric law recently approved in New York, it is time for fund investors to go back to basics. And the most basic decision...

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Thanks to an esoteric law recently approved in New York, it is time for fund investors to go back to basics.

And the most basic decision an investor has when they buy a fund is how to register their shares. In the not-too-distant future, a lot of investors may not only want to change the way they have set up their fund accounts, they will find the process much easier to accomplish. New York Gov. George Pataki signed into law a bill that allows “transfer-on-death” registration of a securities account, allowing individuals to automatically pass securities accounts to pre-designated beneficiaries upon the owner’s death, without first requiring that the account go through the probate process.

While New York was the 48th state to approve transfer-on-death legislation — only North Carolina and Louisiana don’t have it — the Empire State is critical in expanding the availability of the registration.

Financial firms are not required by law to offer transfer-on-death registration. Many New York-based firms heretofore have held out offering transfer-on-death to accountholders nationwide, trying to avoid potential legal headaches that might have come from allowing the registration to customers who weren’t eligible for it.

Now, with transfer-on-death available in New York effective Jan. 1, that situation is likely to change.

Even if it doesn’t, however, investors would be well-advised to review precisely how they have registered their fund accounts to make sure their money goes where they want in the end.

Registration is an estate-planning issue, showing where you intend for your accounts to go after you die.

Typically, the idea is to maximize what goes to your heirs and avoid the headaches of probate. Probate is the state judicial process that determines the value of a dead person’s estate. Mutual-fund holdings typically are subject to probate, though laws vary by state.

For anyone with serious estate-planning needs — an estate currently must exceed $1.5 million in assets to be subject to tax, with the limit scheduled to rise to $2 million in 2006 — transfer-on-death options are no big deal.

To minimize taxes, these high net-worth individuals or couples should be hiring an adviser to set up trusts that will preserve as much of the savings as possible. In those situations, mutual-fund accounts will be registered in the name of the trust.

But for smaller savers, people whose estates aren’t likely to threaten the estate-tax limits, transfer-on-death rules are worth examining.

Transfer on death is self-explanatory. Name a beneficiary, and that’s who gets the money, without probate. The money still counts toward the value of the estate, which is why some advisers caution about getting carried away and handling large sums of money this way.

The account owner maintains control of the assets until they die, and has the right to change the beneficiary designation at any time. When the owner dies, the beneficiary can manage the money right away, rather than having it subject to market whims while the estate potentially is tied up in court.

Chuck Jaffe is senior columnist at CBS Marketwatch.