Pros and Cons of Using TOD Accounts to Avoid Probate

What to Know About Transfer on Death Accounts

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A popular alternative to probate in the U.S. is the use of a transfer on death (TOD) account, which is a special type of investment account recognized under state law. When the account owner dies, the remaining assets will pass directly to the TOD beneficiary previously named by the owner without going through the probate process.

What Is a Transfer on Death Account?

TOD accounts can be set up for investment accounts, including mutual funds and stocks and bonds held in a brokerage account. Some states also recognize TOD deeds to transfer property ownership outside of probate. To receive the investments after the account holder passes away, the beneficiaries of a TOD account will need to provide the investment company with an original death certificate for the owner.

The remaining investments will then be transferred to the beneficiaries named in the beneficiary designation form on file with the investment company in the percentages specified. Note that if a revocable living trust is named as the beneficiary of the TOD account, an employee identification number (EIN) will need to be obtained for the trust before the investments can be transferred to the trustee of the trust after the owner dies.

TOD Benefits

Transfer on death accounts are easy to establish. Each company handles the process a little differently, but, in general, TOD accounts are easy to establish. You can start by contacting your investment company to ask how to open a new TOD account or to inquire about changing your existing accounts to TOD accounts.

No Need for Probate

Depending on state law and individual circumstances, probate can be a lengthy process. A TOD account gives the option to bypass probate and transfer the account directly to the TOD beneficiaries even if the account owner had a last will and testament or revocable living trust that stated otherwise. For this reason, you must carefully coordinate your will or trust with the beneficiaries you have named for your TOD accounts.

Joint TOD Accounts 

Multiple owners can maintain a joint account with rights of survivorship and have an undivided interest in the TOD account. When you die, your share of the investments is divided between the surviving owners equally. Tenancy in common and tenancy by the entirety are also possible, depending on your goals for the account.


TOD accounts aren't meant for everyone. In some instances, beneficiaries may be disinherited. For joint TOD accounts of married couples, after one spouse dies, the surviving spouse will have full control to change the beneficiaries. If you and your spouse are in a second marriage and have children from other marriages, the surviving spouse can disinherit the children of the first spouse who dies.

There are also special rules for minors with TOD accounts. Naming minors, such as grandchildren, as TOD beneficiaries of your accounts, may result in unintended consequences if the grandchildren are still minors when you die. Minor beneficiaries do not have any legal authority to receive investments under most state law. Instead, a court-supervised guardianship or conservatorship must be established to manage the assets. When the minor reaches age 18, they will have full access to the TOD investments without any strings attached.

If you have a TOD account, make sure you update your TOD beneficiaries periodically. This is particularly important if a beneficiary you have named predeceases you or falls out of favor. Keep in mind that if you have a revocable living trust and name it as the beneficiary of your TOD accounts, each time you change the beneficiaries of the trust you will also change the TOD beneficiaries without having to change the designation you have on file with the investment company.

Frequently Asked Questions (FAQs)

What is the difference between a POD and a TOD account?

A payable on death (POD) account is most often used with bank accounts such as checking or savings accounts. It can also be used with certificates of deposit (CDs). A TOD account is more often used for investment and brokerage accounts.

Do I need a will if I have a TOD account?

A TOD account designates a beneficiary for a specific investment account, but it doesn't cover your other assets, such as a checking account, car, or other personal property. If you have any of these assets, you will need to write a will to ensure that they go to the person you want. You also need a will to distribute specific bequests, name guardians for minor children, or name an executor to manage your affairs, such as taxes and debts, after your death.

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  1. U.S. Securities and Exchange Commission. "Transfer on Death (TOD) Registration."

  2. Nolo. "States That Allow Transfer-On-Death Deeds for Real Estate."

  3. Ohio State Bar Association. "Law Facts: Revocable Trusts."

  4. Fidelity. "Investment Accounts: Transfer on Death."

  5. Lacy Katzen LLP Attorneys at Law. "Transfer on Death Accounts."

  6. T. Rowe Price. "Transfer on Death Facts."

  7. Fidelity. "Your Spouse as Beneficiary."

  8. American Century Investments. "Transfer on Death Rules," Page 3.

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