What Is an Individual Transfer on Death (TOD) Account?

An Individual Transfer on Death (TOD) account allows asset holders to designate beneficiaries who will directly inherit specific financial assets upon the owner’s passing. This streamlines the transfer process, bypassing the often lengthy and complex probate court proceedings. A TOD designation ensures a more efficient and private distribution of assets to chosen heirs.

Fundamentals of Individual TOD Accounts

A TOD account is not a distinct financial account, but a special designation applied to an existing investment or bank account. It instructs the financial institution to transfer assets directly to named beneficiaries upon the owner’s death. This direct transfer bypasses the probate process, a court-supervised procedure for validating a will and distributing assets.

During the account owner’s lifetime, they retain complete control over all assets within the TOD-designated account. The owner can access, use, sell, or withdraw funds, and can change or revoke the beneficiary designation at any time without the beneficiary’s consent. Named beneficiaries have no rights or access to the account funds or investments until the account owner’s death. This ensures the owner maintains full flexibility and control over their finances.

Assets commonly eligible for a TOD designation include brokerage accounts (stocks, bonds, mutual funds) and bank accounts (using a “Payable on Death” or POD designation). Some states also permit TOD designations for real estate through a Transfer-on-Death deed, and for vehicles.

Preparing to Establish a TOD Account

Establishing a TOD designation requires gathering specific information before initiating the process with a financial institution. Identify all intended beneficiaries, including their full legal names, current addresses, dates of birth, and Social Security numbers. This information is essential for the financial institution to accurately identify and process the transfer.

Decisions must also be made regarding asset distribution among multiple beneficiaries. An account holder can designate primary beneficiaries, who are first in line, and contingent beneficiaries, who inherit if primary beneficiaries are deceased or unable to inherit. Account holders often specify distribution methods, such as equal percentages for each beneficiary, with allocations typically in whole percentages totaling 100%.

Consideration of “per stirpes” versus “per capita” distribution is important, particularly when naming multiple beneficiaries. A “per stirpes” designation ensures that if a beneficiary predeceases the account owner, that beneficiary’s share passes to their direct descendants, such as their children. In contrast, a “per capita” designation means that if a beneficiary dies before the owner, their share is divided equally among the surviving named beneficiaries, with no portion passing to the deceased beneficiary’s heirs. This choice can significantly alter the ultimate distribution of assets.

Opening and Maintaining a TOD Account

After all necessary beneficiary information and distribution decisions are finalized, the formal process of establishing a Transfer on Death designation begins with the financial institution holding the account. This typically involves obtaining a specific TOD designation form, which can often be found online, requested by mail, or acquired at a local branch. The account holder then completes this form, accurately entering all the gathered details for primary and contingent beneficiaries, along with the desired allocation percentages.

Once the form is thoroughly completed, it must be submitted to the financial institution. Common submission methods include mailing the physical form, delivering it in person, or, for some institutions, completing the process through a secure online portal. It is important to confirm with the institution that the designation has been successfully processed and recorded to ensure that the account is properly set up. Some states or financial institutions may also require a Medallion Signature Guarantee for certain changes or initial setups.

Maintaining the TOD designation over time is important to ensure it continues to align with the account owner’s wishes. Life events such as marriage, divorce, birth or adoption of a child, or the death of a named beneficiary should prompt a review and potential update of the designation. To update, the account holder would typically submit a new TOD form, which generally supersedes any previous designations. Periodic review, perhaps every few years, helps ensure that the designated beneficiaries and distribution plan remain current and effective.