How Transfer on Death (TOD) Accounts Help You Avoid Probate
Confused about transfer-on-death (TOD) accounts? This article answers the most common questions about Transfer on Death designations, how they work, and how they can help you avoid probate.
As an investment firm, we typically encourage clients to add TOD beneficiaries to their individual brokerage accounts to avoid the probate process, should the owner of the account unexpectedly pass away. TOD stands for “Transfer on Death”. When someone passes away, their assets pass to their beneficiaries in one of three ways:
Probate
Contract
Trust
Passing Asset by Contract
When you set up an IRA, 401(K), annuity, or life insurance policy, at some point during the account opening process, the custodian or life insurance company will ask you to list beneficiaries on your account. This is a standard procedure for these types of accounts because when the account owner passes away, they look at the beneficiary form completed by the account owner, and the assets pass “by contract” to the beneficiaries listed on the account. Since these accounts pass by contract, they automatically avoid the headaches of the probate process.
Probate
Non-retirement accounts like brokerage accounts, savings accounts, and checking accounts are often set up in an individual's name without beneficiaries listed on the account. If someone that passes away has one of these accounts, the decedent’s last will and testament determines who will receive the balance in those accounts - but those accounts are required to go through a legal process called “probate”. The probate process is required to transfer the decedent’s assets into their “estate”, and then ultimately distribute the assets of the estate to the estate beneficiaries.
Since the probate process involves the public court system, it can often take months before the assets of the estate are distributed to the beneficiaries of the estate. Depending on the size and complexity of the estate, there could also be expenses associated with the probate process, including but not limited to court filing fees, attorney fees, accountant fees, executor fees, appraiser fees, or valuation experts.
For this reason, many estate plans aim to avoid probate whenever possible.
Transfer On Death Designation
A very easy solution to avoid the probate process for brokerage accounts, checking accounts, and savings accounts, is to add a TOD designation to the account. The process of turning an individual account into a Transfer on Death account is also very easy because it usually only involves completing a Transfer-on-Death form, which lists the name and percentages of the beneficiaries assigned to the account. Once an individual account has been changed into a TOD account, if the account owner were to pass away, that account no longer goes through the probate process; it now passes to the beneficiaries by contract, similar to an IRA.
Frequently Asked Questions About TOD Accounts
After we explain the TOD strategy to clients, there are often several commonly asked questions that follow, so I’ll list them in a question-and-answer format:
Q: Can you change the beneficiaries listed on a TOD account at any time?
A: Yes, the beneficiaries assigned to a TOD account can be changed at any time by completing an updated TOD designation form
Q: If I list TOD beneficiaries on all of my non-retirement accounts, do I still need a will?
A: We strongly recommend that everyone execute a will for assets that are difficult to list TOD beneficiaries, such as a car, jewelry, household items, and for any other assets that don’t pass by contract or by trust.
Q: Can I list TOD beneficiaries on my house?
A: It depends on what state you live in. Currently, 31 states allow TOD deeds for real estate. New York became the newest state added to the list in 2024.
Q: Can my TOD beneficiaries be the same as my will?
A: Yes, you can make the TOD beneficiaries the same as your will. However, since TOD accounts pass by contract and not by your will, you can make beneficiary designations other than what is listed in your will.
Q: Can I list different beneficiaries on each TOD account (brokerage, checking, savings)?
A: Yes
Q: Can I list a trust as the beneficiary of my TOD account?
A: Yes
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs):
What does TOD mean and how does it work?
TOD stands for “Transfer on Death.” It allows you to name beneficiaries on certain financial accounts—such as brokerage, checking, or savings accounts—so that the assets transfer directly to those beneficiaries when you pass away, bypassing the probate process entirely.
How is a TOD account different from probate or a trust?
Assets that pass through probate are distributed under a will and may take months to settle, while assets in a trust or TOD account pass directly to beneficiaries without court involvement. A TOD designation provides a simple, low-cost way to avoid probate for individual accounts.
Can I change the beneficiaries on my TOD account?
Yes. You can update or change your TOD beneficiaries at any time by completing a new Transfer-on-Death designation form with your financial institution. The most recent form on file will determine who receives the assets upon your passing.
Do I still need a will if I have TOD accounts?
Yes. A will is still necessary for assets that cannot have TOD beneficiaries, such as vehicles, personal items, or real estate in states that don’t allow TOD deeds. A will ensures these remaining assets are distributed according to your wishes.
Can I add TOD beneficiaries to my house or real estate?
In many states, yes. As of 2024, 31 states—including New York—allow Transfer-on-Death deeds for real estate. Rules vary by state, so it’s important to confirm eligibility and filing requirements where you live.
Can I name different beneficiaries on each TOD account?
Yes. You can assign unique beneficiaries and percentage allocations for each TOD account, giving you flexibility in how your assets are distributed.
Can I name a trust as the beneficiary of my TOD account?
Yes. You can designate a trust as your TOD beneficiary, which can be beneficial if your estate plan includes specific instructions for how and when assets should be distributed to heirs.
