TOD

What is transfer on death (TOD)?

A TOD, or transfer on death, is an estate planning tool that streamlines the inheritance of certain assets after the owner's death, typically through a TOD clause or deed. For financial accounts, a TOD clause may also be called a pay on death (POD) clause. Unlike a will, a TOD allows you to directly transfer assets to one or more beneficiaries without having to go through probate.

The following are common assets you can transfer through a TOD:

• Stocks
• Bonds
• Bank accounts
• Brokerage accounts
• Retirement accounts
• Real estate

The owner(s) of a TOD can revise it at any time during their lifetime. Designated beneficiaries automatically inherit the asset after the owner's death, or, if it's a joint account, upon the surviving joint owner's death. Beneficiaries can be either an individual or an organization, such as a library or charity. Owners can also name successor beneficiaries to inherit the TOD if the original beneficiary dies.

Although TODs are a convenient estate planning tool, laws vary by state and not all financial accounts support them. It's smart to consult an attorney about what TOD options are available in your state. Similarly, contact your financial institution to see if your account supports TOD designations.

To learn more about how they work, read our comprehensive guide to TODs.

Transfer on death FAQs 

Is it better to have a TOD or a trust?

Whether it's better to transfer an asset through a TOD or trust really depends on the asset, the state you live in, and what you want to accomplish. For example, some states only allow you to transfer real estate through a TOD but allow POD designations for bank accounts. Other states don't allow any form of TOD or POD.

Additionally, TODs don't address incapacitation, while trusts allow you to designate trustees who can manage your assets if you become incapacitated.

That said, it's best to consult an estate planning attorney about which option is right for you.

Does TOD avoid inheritance tax?

No, a TOD account may still be subject to capital gains tax, estate tax, and inheritance tax. It's best to consult an estate planning attorney or tax advisor on how to navigate taxes in your estate plan.

How do you designate multiple beneficiaries in a TOD?

Generally you can designate more than one beneficiary on a TOD deed or designation form by listing the full names of each beneficiary and the amount of the title or share you want them to receive.

Does the surviving spouse automatically inherit a TOD?

The surviving spouse may still have rights to certain assets even if a TOD beneficiary is not the surviving spouse, particularly if you live in a community property state where both spouses equally own assets acquired during their marriage.