Transfer on Death (TOD): What It Is and How It Works

What Is Transfer on Death (TOD)?

The transfer on death (TOD) designation allows an account holder to pass assets from brokerage accounts, stocks, and bonds at their death, bypassing probate. The account holder or security owner specifies the percentage of assets each person receives.

With a transfer on death registration, the named beneficiaries have no access to or control over a person's assets as long as the person is alive.

How Assets Are Transferred

Transfers on Death ensure an investor's securities and security-related assets are passed on to the person or people they want them to be passed to without going through a lengthy probate process. The Uniform Transfer on Death Securities Registration Act lets owners name beneficiaries for their stocks, bonds, or brokerage accounts with percentage allocations.

Retirement accounts such as Individual Retirement Accounts (IRAs) or 401(k)s are not TOD accounts. These have named beneficiaries, with regulations determining when beneficiaries can make withdrawals, how much they can withdraw, or how they are taxed. A TOD transfers all assets associated with an account to the named beneficiary.

Required Documents

Proof of Death: This may be in the form of a death certificate, current court letter of appointment, stock power of attorney, affidavit of domicile, or other documents as proof of death.

Proof of Ownership: Documentation citing the owner and proof of TOD intent. A TOD is used for stocks, bonds, deeds, and similar assets.

Type of Account: Required documents depend on the type of account, such as a single or joint account, whether one or both account holders are deceased, and whether the account is a trust account and the trustee or grantor is deceased.

Example

An investor and active day trader has $50,000 in a margin account with their broker and stocks worth $200,000 in their brokerage account. When this investor set up these accounts, they filed a TOD form, stipulating who the assets should be transferred to upon death and in what percentages. The account owner can update this form at any time.

Assume the owner of the account is unmarried with two adult children. They leave 50% of their brokerage account and stocks to their son and 50% to their daughter. Upon death, and after the appropriate paperwork is filed, half of the account balance and stocks will transfer to the son and the other half to the daughter.

The Bottom Line

A transfer on death, or TOD, is a designation that allows assets to pass directly to a beneficiary after they die. The account owner specifies the percentage of assets each beneficiary receives, allowing their executor to distribute without first passing through probate. TOD cannot be used for retirement accounts like IRAs because retirement account beneficiaries must follow withdrawal and taxation rules.