In finance, TOD stands for Transfer on Death, a beneficiary designation you attach to a financial account that sends the assets directly to a named person when you die. The transfer happens outside probate, so there is no executor, no court approval, and no waiting for a will to clear.1FINRA. Plan Now to Smooth the Transfer of Your Brokerage Account Assets on Death While you’re alive you keep full control of the account, and the beneficiary has no rights to anything in it.
How the Designation Works
A TOD label is a set of instructions built into your account registration. It sits dormant during your lifetime and activates the moment you die, shifting ownership to whoever you named on the form. Because the transfer bypasses probate, it also stays off the public record that probate proceedings create.1FINRA. Plan Now to Smooth the Transfer of Your Brokerage Account Assets on Death
Nothing about how you use the account changes. You can buy and sell, deposit and withdraw, or close the account entirely, all without your beneficiary’s knowledge or permission. You can also swap in a new beneficiary at any time by filing an updated form with your financial institution.
Which Accounts Can Carry a TOD
TOD designations apply to most non-retirement investment accounts. Individual brokerage accounts, individual stocks, corporate and government bonds, and mutual fund shares held outside a retirement plan all qualify. A brokerage firm typically offers a single TOD form that covers every asset in the account.1FINRA. Plan Now to Smooth the Transfer of Your Brokerage Account Assets on Death
Bank accounts use the same idea under a different name. Savings and checking accounts carry a Payable on Death (POD) label instead of TOD, but the effect is identical: the funds go to the named person without probate.
Retirement accounts like IRAs and 401(k)s are not labeled TOD because they have their own beneficiary systems governed by federal tax law, and, for employer plans, ERISA. The concept is similar, but the rules around required distributions and tax treatment for the heir are different.
Why the TOD Form Beats Your Will
The beneficiary named on your TOD form controls who gets the assets, no matter what your will says. If your TOD form names your sister but your will leaves “all investments” to your brother, your sister still gets the account. Wills only govern probate assets, meaning property without a built-in transfer mechanism. TOD accounts, life insurance policies, and retirement accounts pass by beneficiary designation and sit outside the will’s reach.
That makes keeping your TOD forms current as important as keeping your will current. After a marriage, divorce, birth, or death in the family, review every designation you have on file.
Setting Up a TOD
To add a TOD beneficiary, complete a beneficiary designation form from your brokerage firm or fund company. Most firms make it available in the account settings of the online portal, and paper forms are usually available on request. You’ll be asked for:
- The beneficiary’s full legal name, exactly as it appears on their government ID
- Their Social Security number, for tax reporting after the transfer
- Their date of birth
- Their relationship to you
If you name more than one person, you must assign each a specific percentage, and the percentages must add up to exactly 100. If the math is off or a field is blank, the firm will reject the form until you fix it.
Primary and Contingent Beneficiaries
Most forms let you name both primary and contingent beneficiaries. Primary beneficiaries inherit first. Contingent beneficiaries are the backup, receiving the assets only if every primary beneficiary has died, cannot be located, or refuses the inheritance. A contingent tier keeps the account from falling into probate when your first choices are gone.
Per Stirpes Versus Per Capita
Some forms ask you to choose between “per stirpes” and “per capita” distribution. The choice matters when a beneficiary dies before you do.
- Per stirpes (by branch): a deceased beneficiary’s share passes down to their own children. If you name your two children equally and one dies before you, that child’s 50 percent goes to their kids.
- Per capita (by head): only surviving beneficiaries receive a share. In the same scenario, your surviving child would take the whole account, and the deceased child’s family would get nothing.
If you don’t specify, the default depends on state law and the firm’s own policies. Choosing on the form removes the guesswork.
Tax Treatment for the Heir
Skipping probate does not mean skipping taxes. Two rules do most of the work.
Stepped-Up Cost Basis
When you inherit securities through a TOD account, the cost basis resets to the fair market value on the date of the owner’s death. If the original owner bought stock for $10,000 and it was worth $50,000 when they died, your basis is $50,000. Sell it right away for $50,000 and you owe nothing in capital gains on the $40,000 of appreciation that built up during the owner’s lifetime.2Office of the Law Revision Counsel. 26 USC 1014 Basis of Property Acquired From a Decedent
Any income the assets generate after the transfer, whether dividends, interest, or capital gains above the stepped-up basis, is taxable to the beneficiary in the year received.
Federal Estate Tax
TOD assets skip probate but still count in the deceased owner’s gross estate for federal estate tax purposes. Probate is a court process for distributing what someone owned; estate tax is a tax on the total value of it. For 2026, the federal estate tax exemption is $15,000,000 per individual, so this only touches estates above that threshold.3Internal Revenue Service. What’s New – Estate and Gift Tax
Creditors Can Sometimes Still Reach the Assets
A TOD account is not automatically shielded from the deceased owner’s debts. Many states have adopted some version of the Uniform Nonprobate Transfers on Death Act, which lets creditors reach TOD assets when the probate estate doesn’t have enough to cover what the deceased owed. Under those rules, a beneficiary’s exposure generally cannot exceed the value of what they received.
In states without that kind of statute, TOD assets may pass free of the owner’s unsecured debts. Because the rules vary so much, a beneficiary receiving a large TOD transfer from someone with substantial debts should talk to an attorney in the relevant state.
Situations That Trip People Up
Divorce
Roughly half of states automatically revoke an ex-spouse’s TOD designation when a divorce is finalized, treating the designation as if the ex-spouse had died first. The other states have no automatic revocation, meaning your ex would still inherit unless you update the form yourself. Either way, filing a new designation right after the divorce is the safe move.
Naming a Minor
If you name a child under 18, the financial institution generally cannot release the assets directly to them. An adult has to manage the money, either a custodian you named under the Uniform Transfers to Minors Act (UTMA) or a court-appointed guardian. Guardianship is slow and expensive, which is precisely what a TOD is supposed to avoid. If you want a minor to benefit, name a UTMA custodian on the form or set up a trust.
Joint Accounts With Right of Survivorship
When an account is held jointly with right of survivorship, the surviving co-owner takes full ownership when the other dies. A TOD designation on that account only activates after the last co-owner is gone.
Claiming a TOD Account After a Death
The beneficiary has to contact the financial institution to start the transfer. The estate or transfer services department will ask for:
- A certified death certificate from the state or local vital records office. Most firms want an original certified copy, not a photocopy. Fees run roughly $5 to $34 depending on the state.
- Government-issued photo ID for the beneficiary.
- Completed transfer paperwork provided by the institution to re-title the assets.4Investor.gov. Transferring Assets
Once the paperwork is accepted, the firm typically re-titles the holdings into a new account in the beneficiary’s name within a few weeks. From there, the beneficiary can hold, sell, or move the investments as they see fit.