Yes, stocks can have beneficiaries. Most brokerage firms let you add a transfer-on-death (TOD) designation to your account, and the person you name inherits the shares directly when you die, without going through probate. Setting it up usually takes a few minutes in your account settings and costs nothing.
How a TOD Designation Works
TOD registration is authorized by the Uniform Transfer on Death Securities Registration Act, a model law adopted in nearly every state. When you add the designation, your account title changes to include “TOD” alongside your beneficiary’s name. You keep full control during your lifetime. You can buy, sell, withdraw, and change the designation whenever you want, and you don’t have to tell the beneficiary any of it. They have no rights to the assets until you die.
The designation covers the individual stocks, bonds, mutual fund shares, and cash balances held inside the account. It operates as a contract between you and the brokerage, which means it sits outside the will-and-probate system entirely. That has an important consequence: a TOD designation overrides your will on those same assets. If your will leaves your portfolio to your daughter but your TOD form names your brother, your brother gets the stocks. Keep the two aligned.
Setting Up the Designation
Most firms let you complete the designation online through your account settings, usually under a “beneficiary” or “TOD” tab. Some also accept paper forms by mail or secure upload, and many offer electronic signatures.
For each person you name, expect to provide:
- Full legal name and date of birth, so the firm can verify identity later
- Social Security number, which the IRS uses to track the transfer
- Current mailing address, so the brokerage can reach the beneficiary after your death
After you submit the form, the brokerage sends a confirmation. Check your next statement to make sure the names appear correctly. Then revisit the designation after any major life change: marriage, divorce, a birth, or the death of someone you named. Outdated beneficiary forms are one of the most common estate planning failures, and they are among the easiest to prevent.
Primary, Contingent, and How Shares Split
You will designate both primary beneficiaries, who are first in line, and contingent beneficiaries, who receive the assets only if your primary beneficiary dies before you do. Naming a contingent beneficiary costs nothing and prevents the account from falling back into probate if your first choice is gone.
Most forms also ask you to choose a distribution method: per stirpes or per capita. This only matters if one of your beneficiaries dies before you, but when it matters, it matters a lot.
Per stirpes, meaning “by branch,” passes a deceased beneficiary’s share down to that person’s children. Name your three kids, and if one dies before you, that child’s portion flows to their children, your grandchildren. The family branch stays intact.
Per capita, meaning “by head,” divides everything among the surviving named beneficiaries. Same scenario: if one of your three children dies before you, the other two split the entire account, and the deceased child’s family receives nothing from this account.
Neither is universally better. Per stirpes protects grandchildren; per capita keeps things simple when the next generation isn’t part of the plan. If you don’t make a deliberate choice, the brokerage applies its default, which may not match what you’d pick. Ask which one the firm uses if the form doesn’t say.
When a Direct Designation Gets Complicated
Naming a Minor
Naming someone under 18 as a direct beneficiary creates a legal problem. Minors cannot take ownership of a brokerage account because they lack the legal capacity to sign contracts and manage financial assets. If you die while the beneficiary is still a child, a court will likely need to appoint a guardian or conservator to manage the assets, which defeats the probate-avoidance point of using TOD in the first place.
The standard workaround is naming a custodian under the Uniform Transfers to Minors Act (UTMA), which every state has adopted in some form.1FINRA. FINRA Reminds Member Firms of Their Responsibilities for Supervising UTMA and UGMA Accounts Instead of designating “Jane Smith,” you designate something like “John Smith, UTMA custodian for Jane Smith.” The custodian manages the account until the child reaches the age of majority, which is 18 or 21 depending on the state. At that point the custodianship ends automatically and the young adult takes control.
If You’re Married in a Community Property State
If you live in one of the nine community property states, your spouse automatically owns half of any investments acquired during the marriage, regardless of whose name is on the account.2Internal Revenue Service. 25.18.1 Basic Principles of Community Property Law You cannot designate a third party as beneficiary for your spouse’s half without their written consent.
Most brokerages handle this by requiring the non-owner spouse to sign a waiver giving up their community property interest in the account. Some firms want the waiver notarized. Without that signed consent, the brokerage will generally transfer only your half to your named beneficiary, with the other half going to your spouse by operation of law.
Stocks Inside a Retirement Account
TOD registration does not apply to stocks held inside an IRA, 401(k), or other retirement account. Those accounts have their own built-in beneficiary systems with different rules. Employer-sponsored plans like 401(k)s fall under federal ERISA rules, which generally require your spouse to be the primary beneficiary unless they sign a written waiver, a stronger protection than community property law provides and one that applies nationwide. IRAs don’t carry the same automatic spousal-consent requirement but come with their own rules about how quickly a beneficiary must withdraw inherited funds.
If you own stocks in both a taxable brokerage account and a retirement account, you need to set up beneficiary designations on each one separately. A TOD designation on your brokerage account does nothing for your IRA, and vice versa.
What Your Beneficiary Actually Gets
The Stepped-Up Basis
When someone inherits stocks through a TOD designation, their cost basis resets to the fair market value on the date of the original owner’s death.3Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent All the gains that built up during your lifetime are effectively erased for capital gains tax purposes.
The math is straightforward. If you bought $10,000 worth of stock decades ago and it’s worth $200,000 when you die, your beneficiary’s basis is $200,000. If they sell right away, they owe little or no capital gains tax. Without the stepped-up basis rule, they would face tax on $190,000 in gains. The rule applies whether the stock passes through TOD, a trust, or probate.
Federal estate tax rarely comes into play for most families. The exemption for 2026 is $15 million per individual, with inflation adjustments in future years.4Office of the Law Revision Counsel. 26 U.S. Code 2010 – Unified Credit Against Estate Tax Some states impose their own estate or inheritance taxes at lower thresholds, so the full picture depends on where you live.
Creditors Can Still Reach the Account
A common misconception is that TOD registration shields assets from the original owner’s debts. It doesn’t. Even though TOD assets bypass probate, they’re still considered part of the deceased owner’s estate for creditor claims. If the estate carries unpaid debts, medical bills, or tax obligations, creditors may have a legal path to those assets before the beneficiary receives them.
Some brokerage firms address this by requiring the beneficiary to confirm, sometimes by affidavit, that the deceased owner’s debts have been settled before releasing the account. The specifics vary by firm and by state, but the general principle holds everywhere: TOD registration is a probate-avoidance tool, not an asset-protection tool. If shielding assets from creditors is a priority, a properly structured trust offers more protection than a TOD designation alone.