A transfer on death beneficiary is someone you name on an account or deed to inherit that specific asset the moment you die, without probate. The designation sits quietly during your lifetime and gives the person you named no rights, no access, and no control until your death. What makes it powerful is also what causes the most problems: it overrides your will. If your will leaves your brokerage account to your daughter but the TOD form still names your ex-spouse, your ex-spouse gets the account.
How the Designation Works
A TOD designation is a contract between you and the institution holding your asset. You fill out a form telling the bank, brokerage, or county recorder’s office who should receive the asset when you die. Until that happens, the form has no practical effect. You keep full ownership, can spend or sell the asset, and owe nothing to the person you named.
When you die, the beneficiary contacts the institution, shows proof of death, and the asset transfers directly. The process sidesteps probate court, which is the main reason people use it. And because the designation is a separate legal document filed with the institution, it controls over anything your will says about the same asset. The TOD form wins, not the will.
Which Assets Can Carry a TOD
The list is broader than most people realize, though it depends on the asset type and the laws where you live.
Bank Accounts
Banks and credit unions offer what’s typically called a payable on death (POD) designation for checking, savings, money market accounts, and CDs. The mechanics are identical to a TOD. Setting one up usually costs nothing and takes a few minutes.
Investment Accounts
Brokerage accounts, individual stocks, and bonds can be registered in beneficiary form under the Uniform Transfer on Death Securities Registration Act, which all 50 states and the District of Columbia have adopted. Securities held in TOD registration transfer automatically on the owner’s death without a court order.
Real Estate
A transfer on death deed lets you name a beneficiary for real property. The deed must be signed, notarized, and recorded in the county land records while you’re alive. Roughly 30 states currently authorize TOD deeds. If your state doesn’t, a revocable living trust can accomplish a similar result. An unrecorded deed has no legal effect.
Motor Vehicles
Many states let you name a beneficiary directly on a vehicle title or through a form filed with the motor vehicle department. Availability and process vary by state.
Who You Can Name
You have wide discretion. Most people name a spouse, child, or other relative, but the options extend well past that.
- One or more individuals, split by percentage. Two children at 50% each is common, but you can divide it any way you want.
- Charities and nonprofits, which can also produce estate tax benefits.
- A trust, which gives you more control over how the assets are managed after your death, including conditions on distributions.
- Contingent beneficiaries, who inherit if the primary beneficiary dies before you. Skipping this step is a common mistake that sends the asset into probate.
Per Stirpes Versus Per Capita
When you name multiple beneficiaries, most forms ask you to choose between per stirpes and per capita distribution. The difference matters when a beneficiary dies before you. Per stirpes means a deceased beneficiary’s share passes down to their own children. Per capita typically means the surviving beneficiaries split the deceased person’s share among themselves. Name your three children per stirpes, and if one dies before you, that child’s kids inherit their parent’s third. Under per capita, your two surviving children would each take half.
Naming a Minor
You can name a minor as a TOD beneficiary, but minors can’t legally manage money or own property. If a minor inherits through a TOD, a court may need to appoint a guardian or custodian to manage the asset until the child reaches adulthood. A better approach is naming a trust for the child’s benefit, or setting up the designation so the assets flow into a custodial account under the Uniform Transfers to Minors Act, which every state has adopted.
Setting One Up
The process varies by asset, but the basics don’t. You’ll need each beneficiary’s full legal name, Social Security number, date of birth, and current mailing address. Missing or inaccurate information is the most common reason institutions reject or delay a TOD form, so double-check before submitting.
For bank and brokerage accounts, complete the institution’s own beneficiary form, available online or at a branch. These are typically free to file. For real estate, use a TOD deed that complies with your state’s statute, and get it notarized and recorded with the county recorder’s office before your death. For vehicles, contact your state’s motor vehicle department for the appropriate title form.
Some institutions require notarization or witnessed signatures, particularly for larger accounts. Even where it isn’t required, notarization can prevent disputes later. Keep copies of every filed form, and make sure your beneficiaries know the designations exist. A perfectly valid TOD does no good if the beneficiary doesn’t know to contact the institution.
Changing or Revoking
You can change or revoke a TOD designation at any time during your life, and you never need the beneficiary’s permission. For bank and brokerage accounts, submit an updated beneficiary form and the new one replaces the old.
TOD deeds for real estate require an extra step. The revocation or new deed must be recorded in the county land records before you die. Three ways to undo a recorded TOD deed: record a formal revocation, record a new TOD deed for the same property, or transfer the property to someone else through a standard recorded deed during your lifetime. You cannot revoke a TOD deed through your will. Write a will leaving your house to someone different than the TOD deed names, and the deed still controls.
Life changes should trigger a review of every beneficiary designation you have. Marriage, divorce, the birth of a child, or the death of a beneficiary can all make an old designation wrong. This is where people most often get burned: they update their will and forget the TOD forms.
What Divorce Does
In most states, divorce automatically revokes any beneficiary designation naming your former spouse. The rule, modeled on Section 2-804 of the Uniform Probate Code, applies to TOD accounts, POD accounts, and other nonprobate transfers, and typically extends to relatives of your ex-spouse. If you want your ex-spouse to remain as beneficiary after a divorce, you’ll generally need to re-designate them after the divorce is final.
There is a major exception. Employer-sponsored retirement plans and certain life insurance policies governed by the federal Employee Retirement Income Security Act are not touched by state divorce-revocation laws. ERISA preempts them, so the beneficiary named on an ERISA-governed plan stays in place regardless of what state law says. The Supreme Court confirmed this in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, holding that plan administrators must follow the plan documents, not state revocation statutes.1Justia Law. Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (2009) If you have a 401(k) or employer life insurance policy and get divorced, submit a new beneficiary form to the plan administrator yourself.
Claiming Assets After the Owner Dies
The beneficiary starts the transfer by contacting the institution that holds the asset. Two documents are needed in nearly every case: a certified copy of the death certificate and a valid government-issued photo ID. Certified death certificates come from the local vital records office or health department, and most institutions require an original with a raised seal, not a photocopy.
The institution verifies your identity, confirms the death, and processes the transfer. Bank funds are typically moved into a new account in the beneficiary’s name within a few business days. Brokerage transfers may take longer because securities need to be re-registered. Real estate transfers require filing additional documents with the county recorder. You don’t need a lawyer, a court order, or permission from the estate executor.
Simultaneous Death
If you and your beneficiary die at the same time or close together, most states apply a 120-hour survivorship rule. Unless your designation says otherwise, a beneficiary who doesn’t survive you by at least five days is treated as having died first. The asset then passes to your contingent beneficiary if you named one, or falls into your probate estate if you didn’t.
Taxes the Beneficiary Owes
TOD designations skip probate. They do not skip taxes. Treatment depends on the asset type.
Stepped-Up Basis on Investments and Real Estate
Inherit stocks, bonds, mutual funds, or real estate through a TOD, and your cost basis resets to the fair market value on the date the owner died.2Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent This stepped-up basis can dramatically reduce capital gains taxes. If the original owner bought stock for $10,000 and it was worth $100,000 when they died, your basis is $100,000. Sell the next day for $100,000 and you owe zero capital gains tax. You also automatically qualify for the long-term capital gains rate on future appreciation, regardless of how long you hold the asset.
The step-up doesn’t apply to cash, bank accounts, CDs, retirement accounts, or annuities.
Retirement Accounts
Inherited traditional IRAs and similar pre-tax retirement accounts are taxed as ordinary income when the beneficiary takes distributions. Every dollar withdrawn is treated as income the original owner earned but never paid taxes on.3Internal Revenue Service. Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs) Most non-spouse beneficiaries must withdraw the entire account within 10 years of the owner’s death under current rules. If the estate paid federal estate tax, the beneficiary may be able to claim a deduction for the portion of estate tax attributable to the retirement account, which prevents the same money from being taxed twice.
Federal Estate Tax
Every asset you own at death, including TOD, POD, and beneficiary-designated accounts, is included in your gross estate for federal estate tax purposes.4Office of the Law Revision Counsel. 26 USC 2033 – Property in Which the Decedent Had an Interest A TOD designation avoids probate. It does not avoid estate tax. For 2026, the federal estate tax exemption is $15 million per individual, so estates below that threshold owe nothing at the federal level. State estate or inheritance taxes, where they exist, may kick in at much lower thresholds.
What Can Override Your Designation
Naming anyone other than your spouse can run into legal barriers, and the rules depend on where you live. Most states give a surviving spouse the right to claim an elective share of the deceased spouse’s estate, typically one-third to one-half. In the majority of states, the elective share calculation reaches non-probate assets like TOD accounts, POD accounts, and jointly held property. A surviving spouse can potentially claw back assets you designated to someone else.
In community property states, the issue is more direct. Each spouse generally owns half of all assets acquired during the marriage. You can freely designate your half to anyone you choose, but you can’t give away your spouse’s half through a TOD form. Financial institutions that transfer in good faith reliance on the form are generally protected, but the surviving spouse can pursue their ownership claim against whoever received the funds. If you’re married and want to name someone other than your spouse, get legal advice first.
Creditors and Medicaid Recovery
One perceived advantage of TOD designations is moving assets outside the probate estate, theoretically beyond creditors’ reach. The reality is more complicated. Because TOD assets bypass probate, they can leave the probate estate without enough funds to pay the deceased owner’s debts, funeral costs, or final tax obligations. Whether creditors can pursue assets that already transferred to a TOD beneficiary varies by state.
Medicaid estate recovery is a specific and growing concern. Federal law requires every state to seek reimbursement from the estates of Medicaid recipients who were 55 or older when they received long-term care benefits, including nursing home services and home-based care.5Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets At minimum, states must recover from probate assets. Federal law also gives states the option to define “estate” broadly enough to reach assets that bypass probate, including property transferred through TOD deeds, joint tenancy, and life insurance.6U.S. Department of Health and Human Services. Medicaid Estate Recovery A growing number of states have done exactly that.
Recovery is limited in certain situations. States cannot pursue reimbursement while a surviving spouse is alive, or from a surviving child who is under 21, blind, or permanently disabled. States must also waive recovery when it would cause undue hardship, though each state defines hardship differently. If you or a family member received Medicaid-funded long-term care, check your state’s estate recovery rules before assuming a TOD designation will shield the asset.