How to Avoid Probate With a Transfer on Death (TOD) Account

Assets can pass directly to beneficiaries outside the probate process

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Transfer on death (TOD) accounts avoid probate because they transfer automatically to a beneficiary when the owner dies. This a special type of account that's recognized under some states' laws and it's exactly what the name indicates: The account transfers to another individual or individuals by operation of law so it doesn't require the probate court process.

Some Examples of TOD Assets

TOD assets can cover a rather broad spectrum. Some states allow transfer on death bank accounts, which are often referred to as payable on death accounts. Many types of retirement accounts automatically transfer on death to named beneficiaries as well, including 401(k)s and IRAs.

Brokerage accounts, stocks, and bonds can be held as transfer on death accounts under the terms of the Uniform Transfer on Death Registration Act, and some states also recognize ​transfer on death deeds for real estate.​​

What Are the Advantages of TOD Accounts?

When the account owner dies, a TOD account directly transfers any remaining assets to beneficiaries who have been named by her in the beneficiary designation form on file with the firm. The process does not require probate.

With the exception of certain retirement accounts, this transfer will happen even if the TOD account owner had a last will and testament or revocable living trust leaving the account to someone else. The TOD designation supersedes her will or trust terms.

Who Has Access to a TOD Account?

Beneficiaries named by the owner do not have any access to the TOD account while he's alive. Only the owner has control over the assets held in the account during his lifetime.

The owner also retains the right to change the beneficiaries of his TOD account at any time as long as he's mentally competent.

Can More Than One Person Own a TOD Account?

TOD accounts don't have to be established by only one individual. Two, three, or even more people can have access to a TOD account while any one of the owners is still alive. The assets remaining in the TOD account will be paid to the beneficiaries named by the last surviving owner when she dies.

When the Account Owner Is Married

Surviving spouses take precedence on many TOD retirement accounts. Should the owner in some states name someone else as beneficiary, this provision might be overridden by marital rights to the account.

Does a TOD Account Have to Be Paid Equally to the Beneficiaries?

The TOD account owner doesn't have to leave the account equally if more than one beneficiary is named. The beneficiaries receive the balance of the account in the proportions specified by the owner in the beneficiary designation form.

What Happens If a Named Beneficiary Predeceases the TOD Account Owner?

The assets remaining in the account are paid proportionately to the surviving beneficiaries when one or more of them predecease the owner.

For example, the owner might name four beneficiaries and one of the named beneficiaries predeceases him. The owner doesn't make any changes to the account beneficiary designation, so the assets remaining in the account are paid proportionately to the three surviving beneficiaries when she dies.

But what happens if the owner names only one beneficiary and he predeceases the account owner? The assets remaining in the TOD account become part of the account owner's estate, and in this case they would be subject to probate.

How Brokerage Firms Handle All This

In the case of stocks, bonds, and securities, a beneficiary can often claim funds and assets by simply providing the firm with a death certificate. The transfer on death provision is already written into the contract the firm held with the deceased owner. Some other proofs of death may be acceptable as well.

Generally the firm will not simply retitle the assets or accounts into the beneficiary's name. In most cases, she must open an account with the firm in her own name to accept the transferred bonds and stocks. The new account establishes her legal ownership.