How to Avoid Probate With a Transfer on Death Account (TOD)
A transfer on death account, or TOD account for short, is a special type of investment account that is recognized under state law. Some states also recognize transfer on death deeds for real estate.
A TOD account allows for the assets remaining in the investment account when the account owner dies to pass to directly to the beneficiaries named by the account owner. It will happen outside of probate, and in general, all that the beneficiaries of the TOD account will have to do to gain control of the account after the owner dies is to show the holder of the investment account (usually a brokerage firm) an original death certificate for the owner.
The assets remaining in the TOD account will then be paid to the beneficiaries named by the account owner in the beneficiary designation form on file with the brokerage firm. It will happen even if the TOD account owner had a last will and testament or revocable living trust and regardless of what the will or trust says.
Who Has Access to a TOD Account?
While the owner of the TOD account is alive, the beneficiaries named by the owner to receive the assets left in the account after the owner dies will not have any access to or control over the TOD account, only the owner will have access to and control over the assets held in the account. Also, the owner can change the beneficiaries of the TOD account at any time while the owner is living and competent to make changes to the account.
Can a TOD Account Be Owned by More Than One Person?
TOD accounts do not have to be established by only one person.
Two, three or even more people can have access to a TOD account while any one of the owners is still alive, and then when the last owner dies the assets remaining in the TOD account will be paid to the beneficiaries named by the last surviving owner.
Does a TOD Account Have to Be Paid Equally to the Beneficiaries?
The TOD account owner does not have to leave the account equally if more than one beneficiary is named.
Instead, if more than one beneficiary is named by the TOD account owner to receive the assets remaining in the account after the owner dies, then the beneficiaries will 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?
If a beneficiary named by the TOD account owner predeceases the owner, then the assets remaining in the account will be paid proportionately to the surviving beneficiaries. For example, if the owner names four beneficiaries and one of the named beneficiaries predecease the owner and the owner doesn't make any changes to the account beneficiary designation, then the assets remaining in the account when the owner dies will be paid proportionately to the three surviving beneficiaries. But what will happen if the owner only names one beneficiary and he or she predeceases the account owner and the owner never changes the beneficiary designation? Then the assets remaining in the TOD account will become a part of the account owner's probate assets.