# Transfer on Death (TOD): What It Is and How It Helps Loved Ones Avoid Probate

![Transfer on Death](https://www.investopedia.com/thmb/uOcTFpaT3tngyaVp4gEtK49ZMeM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/transferondeath.asp-final-c06ef2d1ffd946e682ca549883f26e7e.png)

*— Investopedia / Joules Garcia*

> **Definition**
>
> A transfer on death (TOD) is a legal designation that allows named assets to automatically pass to stated beneficiaries upon the account holder's death.

## What Is Transfer on Death (TOD)?

A transfer on death (TOD) ensures your assets are passed immediately to your designated beneficiaries after without legal hurdles, unlike a will, which has to go through the [probate](https://www.investopedia.com/terms/p/probate.asp) process that can be lengthy and tedious.

A TOD can be used for many assets, such as bank accounts, investment portfolios, real estate, brokerage accounts, mutual funds, and certain other assets. It's a strategy to simplify and improve [estate planning](https://www.investopedia.com/terms/e/estateplanning.asp).  

### Key Takeaways

*   A transfer on death (TOD) allows you to pass financial assets, such as bank accounts and investment portfolios, to your beneficiaries automatically.
*   TODs allow for full control during the account holder's lifetime, avoid probate, provide privacy, and are cost-effective.
*   While TODs are a simple and efficient estate-planning tool, they are not the best option for complex financial setups and do not protect against creditors.

## How Transfer on Death Works

A transfer on death is a fairly straightforward strategy to set up. You can head to your bank or other financial institution, fill out the form, and name your assets and [beneficiaries](https://www.investopedia.com/terms/b/beneficiary.asp).

You maintain full control of the assets specified in the TOD form during your lifetime. You can change it as you wish, such as changing beneficiaries or adding or removing assets, and you can even spend/withdraw from the named accounts as well.

Upon your passing, the designated beneficiaries must present a proof of death certificate and any other required documentation. As the process happens outside of probate, it should be fast and without hassles.

However, while the process is more efficient than a will, it doesn't override any outstanding debts. This means that if the account holder had liabilities that were not paid for, [creditors](https://www.investopedia.com/terms/c/creditor.asp) can claim the assets to be made whole.

## How to Set Up a Transfer on Death

Setting up a TOD is a simple process.

1.  **Choose your assets:** Determine what assets you'd like to pass to your beneficiaries: bank accounts, investment accounts, brokerage accounts, crypto wallets, and real estate.
2.  **Fill out the forms:** Financial institutions have TOD forms that you can fill out. You'll have to complete standard information: names, addresses, [Social Security number](https://www.investopedia.com/terms/s/ssn.asp), date of birth, etc.
3.  **Name your beneficiaries:** On the TOD form, you'll need to specify who receives your assets upon your death. This could be anyone in your life: parents, children, grandchildren, and siblings. Think about who you'd like to financially take care of in the event of your death.
4.  **Submit the form:** Submit the completed form to the financial institution. They will confirm if it is in good order, or if additional information is required. Some states may require the form to be [notarized](https://www.investopedia.com/terms/n/notarize.asp).
5.  **Update when necessary:** You can update your TOD at any time, and people most often do so after life-changing events, such as marriage, the birth of a child, divorce, or the death of a beneficiary.

> **Important**
>
> Retirement accounts, such as 401(k)s and IRAs generally don't need transfer-on-death (TOD) designations because they require the account holder to stipulate beneficiaries. This is also the case for life insurance policies and annuities.

## Advantages and Disadvantages of a TOD

Transfer-on-death designations come with plenty of advantages as well as disadvantages. It's important to consider all facets before deciding if this is a strategy you want to incorporate into your overall [estate plan](https://www.investopedia.com/articles/retirement/10/estate-planning-checklist.asp).

### Advantages

The biggest advantage of TOD is that it avoids probate. When a person dies, the courts handle their estate and the distribution of their assets, a process known as probate. This is often lengthy and tedious, depending on specifics.

This also means that the assets can take a while to be distributed to the beneficiaries. With TOD, assets go to the beneficiaries immediately without issue. Additionally, probate records are public, so anyone can access them. TOD designations are private. So if privacy about your estate is important to you, this is another benefit of TOD designations.

As discussed above, with TOD, the account holder maintains full control and can adjust the TOD at any time during their lifetime. While this can also be done with a will, many trusts, specifically [irrevocable trusts](https://www.investopedia.com/terms/i/irrevocabletrust.asp), do not allow any changes once set up. This can be extremely restricting if life changes arise that require alterations.

Lastly, TODs are an affordable estate planning tool, as opposed to trusts, for example, which can cost a few thousand dollars to set up.

### Disadvantages

If you're looking to pass your assets onto your beneficiaries immediately, want to maintain privacy, and do it cost-effectively while maintaining control during your lifetime, transfer-on-death designations could be a good fit for you; however, there are important drawbacks to consider before choosing this option.

If you have a complex financial profile, TODs may not be the right choice. They work best for straightforward financial setups, such as bank accounts and investment portfolios. If you have a variety of other assets, [foreign holdings](https://www.investopedia.com/articles/personal-finance/012214/understanding-taxation-foreign-investments.asp), specific rules, multiple beneficiaries, or anything else out of the ordinary, other estate planning tools may work better.

Another important disadvantage is that TODs do not protect against creditors like trusts do. If you owe money when you die, creditors can come collect your assets before they pass onto your beneficiaries. Trust is a better option if you want to protect your assets against debts.  

Pros

*   Affordable to set up
    
*   Avoids probate
    
*   Beneficiaries receive assets immediately
    
*   Private
    
*   Account holder has control during lifetime
    

Cons

*   Not suitable for complex estates
    
*   Does not protect against creditors
    
*   Not all assets can be included
    

## Example of Transfer on Death

Consider Mary, a retired individual with one son, James. Mary has a [brokerage account](https://www.investopedia.com/terms/b/brokerageaccount.asp) valued at $250,000. To ensure James receives this brokerage account upon her death, Mary sets up a TOD with her broker.

A few months after setting up the account, Mary receives $20,000 from a relative, which she puts into the brokerage account. She also withdraws $50,000 for personal reasons. The TOD will now cover the $220,000, as Mary has the right to adjust, withdraw, or add as she has full control of her account.

After Mary passes away, Mark provides the brokerage firm with her death certificate, and as the transfer of death was in place, the funds in the brokerage account go to Mark immediately. They transfer without having to go through probate, which could have been time-consuming and delayed the transfer of assets to Mark, and costly, due to legal fees.  

## The Bottom Line

A transfer on death (TOD) designation is a simple estate planning tool that allows assets to pass directly to beneficiaries upon the account holder's death without having to go through the time-consuming and costly [process of probate](https://www.investopedia.com/articles/04/121304.asp). It allows the account holder full control during their lifetime, providing flexibility, and a seamless transition of assets.

While TODs work well for individuals looking for convenience, privacy, and affordability, they may not be the best option for those with complex estates or needing creditor protection. For straightforward financial setups, however, they're an efficient tool that provides peace of mind, knowing your assets will pass to your heirs without issue.