What Is Transfer on Death Account (TOD)?
A transfer on death account (TOD) is an account that transfers ownership upon the original owner’s death and does not require any action on the part of inheritors.
Typically, these accounts are set up as part of a revocable living trust or estate plan, though they can be used for investment purposes (i.e., stocks and bonds) as well.
How Do Transfer on Death Accounts Work?
There are two types of transfer on death accounts: transfer on death at the account level or transfer on death at the asset level.
Account transfer on death registers the account to your beneficiaries when you die.
As an example, transfer on death accounts transfer the actual account to the beneficiary, not transfer rights to cash or securities in the account.
Asset transfer on death registers the transfer of specific assets to your beneficiaries when you die.
As an example, if you transfer on death stock certificates, it will transfer ownership of those stocks to your beneficiary without any action required by you or your administrator.
Benefits of Having a Transfer on Death Account
There are quite a few benefits to transfer on death accounts:
Ease of Transfer
The transfer of the account upon death is simple, as it requires no transfer paperwork to be filed with any government or agency.
There is no need to go through probate court proceedings, which can save time and avoid delays in inheriting your assets.
You have complete control of transfer on death accounts so your heirs will not be aware of their existence unless you tell them.
Transfer on death accounts are a good way to transfer funds or property to minors because they take effect after your death. This is a legal transfer that does not require court approval or the consent of a parent.
Protection From Creditors
This kind of account is not accessible by creditors.
Holding property as transfer on death effectively places the assets beyond the reach of judgment creditors and other claimants such as bankruptcy trustees, spouses, and children.
Who Can Open a Transfer on Death Account?
Typically, transfer on death accounts are only set up for legal adult individuals.
You can have this account as either an individual or as part of a revocable living trust.
In most cases, this type of account must be managed by an attorney or agent who has been authorized to manage the assets in your transfer account.
For minors, they may have TOD accounts, but transfer may be subject to certain restrictions.
For example, accounts that transfer to minors may require an accounting of the assets for tax purposes after transfer, which is usually only available to legal adults.
How to Set Up and Manage Transfer on Death Accounts?
You can generally set up a transfer on death account with your financial institution, broker or transfer agent. Usually, you will need the following information:
- Account number (if transferring securities)
- Trust name or legal relationship designation of person who has rights to transfer on death
- Name of transfer on death beneficiary
- Signature and title
Typically, you will submit transfer on death forms to transfer or re-register your assets under transfer on death rules.
You can also transfer assets into your account without having to liquidate them first.
However, some assets may need extra documentation before they can be transferred to the beneficiary (e.g., transfer on death joint tenancy bank or brokerage accounts).
Importance of Naming Beneficiaries
The transfer of assets to beneficiaries upon your death can be accomplished through transfer on death accounts.
For transfer on death accounts, you must name a beneficiary for the money or property in transfer form so that it will pass directly to them when you die.
You may also add secondary beneficiaries, if desired.
You should include instructions with your will, trust or revocable living trust to avoid any confusion after you die.
Who Can Be Named as the Beneficiary for Your Estate or Trust?
For transfer on death accounts, you name a beneficiary and this person automatically receives all rights and interest in the account when you die.
This person can be any individual who is eligible to inherit, including family members, friends or anyone who would be an appropriate beneficiary for your estate.
The beneficiary is the only person who can receive assets in transfer on death accounts.
Furthermore, the beneficiary typically does not need to take any action after your death to transfer assets and they don’t have to file a claim against your estate for the transfer.
Transfer on death accounts transfer all interest in property or assets to a beneficiary upon your death.
This type of account is typically set up with financial institutions, brokerages and transfer agents.
You can transfer any type of asset into the account and continue managing it until you die when it automatically transfers to the beneficiary in transfer on death form.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.