An individual Transfer on Death (TOD) account is a regular brokerage or investment account you own by yourself, with a beneficiary designation attached that sends the assets directly to the people you name as soon as you die. No probate court, no executor handling those assets, no public filing. While you’re alive, nothing changes about how you use the account. The beneficiaries only come into the picture at the moment of death.
How the Designation Actually Works
A TOD designation is a contract between you and your financial institution. You fill out their form naming one or more beneficiaries, and the institution agrees that when you die, it will retitle the assets into those people’s names. The arrangement sits on top of a normal individual account, so you keep buying, selling, withdrawing, and spending as you always did. You don’t need anyone’s permission, and you don’t have to tell your beneficiaries they’re listed.
You can also change your mind at any point. Submit a new form, and the old designation is replaced. A beneficiary has no legal interest in the account until you die, so there is nothing for them to object to.1Cornell Law School. Uniform Transfer-on-Death Securities Registration Act
TOD designations are governed in most states by the Uniform Transfer-on-Death Securities Registration Act, which covers stocks, bonds, mutual funds, ETFs, and other securities held in brokerage or investment accounts. The mechanism is the investment-account cousin of the Payable on Death (POD) designation banks use on cash accounts.2FINRA. Plan Now to Smooth the Transfer of Your Brokerage Account Assets on Death
One point surprises people. The TOD form beats your will. If your will leaves the brokerage account to your sister but the TOD form on file names your brother, the brokerage pays your brother and the will does not override that.2FINRA. Plan Now to Smooth the Transfer of Your Brokerage Account Assets on Death Whatever is on the current form is what happens, so keeping the designation accurate matters more than most people realize.
Naming Your Beneficiaries
You set up a TOD by completing a form from your brokerage. It asks for each beneficiary’s full legal name, address, Social Security number, and share of the account as a percentage or fraction. Most institutions also want date of birth and your relationship to the person.
Name a primary beneficiary and at least one contingent. The primary is first in line. The contingent takes over only if the primary dies before you. Skip the contingent and your account can land in probate anyway if your primary beneficiary predeceases you, which defeats the main reason to set up a TOD in the first place.
Per Capita or Per Stirpes
If you name more than one beneficiary, the form usually asks how you want a deceased beneficiary’s share handled:
- Per capita splits the account among the beneficiaries who are still living when you die. If one of them died before you, their share gets redistributed to the survivors.
- Per stirpes sends a deceased beneficiary’s share down to their own descendants rather than redistributing it among the other beneficiaries.
The choice matters most for family accounts. Name your three children per stirpes and one dies before you, that child’s share goes to their kids. Name them per capita and the same situation splits the account only between your two surviving children, leaving the grandchildren with nothing.
Making a Change
To change a TOD designation, submit a new form to the institution and wait for them to process and acknowledge it. A note in your will, a letter to your lawyer, or a verbal instruction to family has no effect on who the brokerage pays.
Life Events That Should Trigger a Review
Stale beneficiary forms are one of the most common estate planning mistakes, and they only surface once it’s too late to fix them. A few situations call for an immediate update.
Divorce
Many states have statutes that automatically void a beneficiary designation naming an ex-spouse once a divorce is final. Not every state has one, the rules differ where they do, and your brokerage may not know about your divorce in time to apply the rule correctly. The safer move is to submit a new TOD form right after the divorce rather than relying on state law to clean it up.
A Minor Child
Naming a child under 18 directly as a TOD beneficiary creates a problem the designation was supposed to prevent. A minor cannot legally take ownership of financial assets, so the brokerage will not transfer the account to the child. Instead, a court generally has to appoint a custodian or guardian to hold and manage the money, which takes months and brings back the court involvement you were trying to avoid.
Two cleaner options exist. Name an adult custodian for the child under the Uniform Transfers to Minors Act, or set up a trust for the child and name the trust as the TOD beneficiary. Either lets you control who manages the money and when the child gets access to it.
A Charity
Nonprofits can be TOD beneficiaries. Use the organization’s full legal name and federal tax identification number on the form so there is no ambiguity about which charity you meant. If you’re splitting the account between individuals and a charity, write out the exact percentages.
What Happens When You Die
Your beneficiary contacts the brokerage to start the transfer. The institution typically asks for three things:
- A certified copy of the death certificate (not a photocopy).
- Government-issued photo ID for the beneficiary.
- The institution’s own transfer request form to re-register the assets.
Once the documents check out, the brokerage retitles the holdings from your name into the beneficiary’s name. The transfer is usually done in kind, meaning the actual securities move over rather than being sold for cash. Inherit 200 shares of a stock and you receive 200 shares, not the cash value.
When there are multiple beneficiaries, the brokerage opens a separate account for each person and divides the portfolio according to the percentages on the TOD form. Start to finish, the process generally takes two to six weeks after the paperwork is complete, which is dramatically shorter than probate.
Taxes Still Apply
Step-Up in Basis
The most valuable tax feature for the beneficiary is the step-up in cost basis. Under Internal Revenue Code Section 1014, the beneficiary’s basis in inherited securities resets to the fair market value on the date of the original owner’s death, regardless of what the owner originally paid.3Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
Say the owner bought a stock decades ago for $10,000 and it was worth $100,000 the day they died. The beneficiary’s basis is $100,000. Sell the next week and there is little or no capital gains tax. Without the step-up, that sale would generate tax on $90,000 of gain.
Federal Estate Tax
Avoiding probate does not avoid estate tax. The full value of a TOD account counts in the deceased owner’s gross estate, and if the estate is large enough, the executor files IRS Form 706 to report and pay what’s owed.4IRS. Instructions for Form 706
For deaths in 2026, the federal exemption is $15,000,000 per individual, so a married couple with proper planning can shield up to $30,000,000.5IRS. What’s New – Estate and Gift Tax Most estates will owe nothing federal, but the exemption has moved around in recent years and could again.
State Taxes
Six states impose an inheritance tax, where the rate depends on the beneficiary’s relationship to the deceased. A surviving spouse typically pays nothing, while siblings or unrelated beneficiaries can face rates in the double digits. TOD assets are not exempt from these taxes just because they bypassed probate. Some states also impose their own estate tax with much lower thresholds than the federal one.
What a TOD Account Won’t Do
A TOD designation handles one problem well and leaves several others untouched.
Creditors
While you’re alive, everything in the account is yours and fully reachable by your creditors. A TOD designation provides no asset protection during your lifetime. After your death, if your probate estate doesn’t have enough to pay your debts, creditors in many states can pursue non-probate assets, including TOD transfers, and the beneficiary may be liable for your debts up to the value of what they received.
A Surviving Spouse’s Elective Share
A number of states give a surviving spouse the right to claim a statutory percentage of the deceased spouse’s estate no matter what the will or beneficiary forms say, and in many of those states the calculation sweeps in TOD accounts and other non-probate transfers. Name someone other than your spouse as the beneficiary, and your spouse may still be able to claim a share. The exact rules vary by state.
Incapacity
A TOD account does nothing if you become unable to manage your own finances. If you have a stroke or develop dementia, nobody can trade, withdraw, or rebalance the account on your behalf unless you’ve separately signed a durable financial power of attorney. Without one, your family may have to go to court for a guardianship or conservatorship. A TOD and a power of attorney work well together, but one does not substitute for the other.
Medicaid
Because the TOD designation is revocable and transfers nothing until death, setting one up does not start Medicaid’s five-year lookback. But the assets still belong to you and still count as available resources when you apply for long-term care benefits. A TOD designation is not a Medicaid planning tool.
When This Is the Right Tool, and When It Isn’t
A TOD designation fits straightforward situations: an individual account owner who wants specific people to receive specific investment assets quickly after death. Most brokerages set it up at no charge, it’s easy to change, and it reliably avoids probate for the account it covers.
It starts to strain in more complex pictures. Blended families, a beneficiary with special needs, minor children, meaningful creditor exposure, or an estate large enough to need tax planning all point toward a revocable living trust instead. A trust lets you condition distributions, shelter assets from a beneficiary’s creditors, provide for someone with disabilities without disqualifying them from government benefits, and manage assets if you become incapacitated.
For most people, the practical answer is to use TOD designations on brokerage and investment accounts inside a broader plan that also includes a will, a durable power of attorney, and a healthcare directive. The TOD moves the account efficiently. The other documents cover everything the TOD doesn’t reach.