Pros and Cons of Using TOD Accounts to Avoid Probate

Rate this post

In the United States, a common alternative to probate is the use of a transfer on death (TOD) account, which is a particular form of investment account allowed under state law. Upon the death of the account owner, the remaining assets will be transferred straight to the TOD beneficiary that the owner has previously designated.

What Is the Purpose of a Transfer on Death Account, and What Is It Used For?

For mutual funds, equities, and bonds stored in a brokerage account, TOD accounts may be set up. To avoid the probate process, certain states also accept TOD deeds. After the account owner’s death, the beneficiaries of a TOD account must submit an official death certificate to the investment business in order to collect the funds invested on his or her behalf.

The remainder of the funds will be distributed proportionally to the individuals or entities designated in the beneficiary designation form on file with the investment firm. In order to transfer investments to the trustee of a revocable living trust, an employment identification number (EIN) must be issued for the trust.

Pros and Cons of Using TOD Accounts to Avoid Probate. Source: Freepik.com

Benefits of TOD

Establishing a death benefit account is a cinch. ToD accounts may be set up in a variety of ways, with varying degrees of difficulty depending on the firm. By contacting your investment business, you may enquire about opening a new TOD account or about converting your current accounts to TOD accounts.

Probate is not required.

Probate might take a long time depending on state law and individual circumstances. Even if the account owner has a last will and testament or revocable living trust that indicated otherwise, a TOD account allows the option to avoid probate and transfer the account straight to the TOD beneficiaries. The beneficiaries of your TOD accounts should be involved in the writing of your will or trust.

  The 3 Types of Profit Margins and What They Tell You

Accounts for Joint TOD

In a joint account with rights of survivorship and an undivided stake in the TOD account, several owners may keep a joint TOD account.

6 When you pass away, your assets are split evenly between the heirs. In addition to tenancy by the whole, you may choose between tenancy in common and tenancy by the whole.


Everyone isn’t a good fit for TOD accounts. Beneficiaries may be disinherited in various circumstances. After the death of one spouse in a married relationship, the remaining spouse will be able to modify the beneficiaries of the joint TOD account. You may disinherit the deceased spouse’s children if you and your spouse get married for the second time and have children from the first marriage.

Minors using TOD accounts must follow additional guidelines. If your grandkids are still minors when you die, naming them as beneficiaries of your accounts may have unanticipated implications. State law generally prohibits most states from granting investments in the hands of minor beneficiaries. In order to administer the assets, a court-supervised guardianship or conservatorship must be formed. Investing in TOD funds will be completely unrestricted for the youngster after they become 18 years old.

Update your TOD beneficiaries on a regular basis if you have a TOD account. This is especially crucial if you have designated a beneficiary who passes away or loses favor. Always keep in mind that any changes to the beneficiaries of your revocable living trust will automatically alter who receives the proceeds from your TOD accounts, so be sure to keep this in mind while making TOD beneficiary designations.

  Protection for Beneficiaries Using Discretionary Lifetime Trusts
Pros and Cons of Using Joint Account To Avoid Probate

My TOD account doesn’t need the use of a will.

There is no provision for your other assets, such as cash in a bank account, a vehicle, or anything else you own personally, in the TOD. Any of these possessions should be memorialized in a will to guarantee that they reach the intended beneficiaries. You also need a will to distribute particular bequests, appoint guardians for young children, or choose an executor to handle your financial issues, such as taxes and debts, after your death.

Where can I learn more about the difference between a POD and a TOD account?

Bank accounts such as checking or savings accounts are often used to set up a payment upon death (POD) account. Certificates of deposit may also be utilized using this method (CDs). Investment and brokerage accounts are more often held in a TOD account.

Similar Posts