Is Transfer on Death (TOD) a Good Way to Distribute Your Estate?

A Transfer on Death (TOD) designation is usually associated with stocks and mutual funds. It allows you to designate a recipient or recipients of the holdings in your account with that institution. It only becomes effective at death. While you are alive, you have full power to manage the account, which includes adding more assets, removing assets, or liquidating the account entirely, if you so choose. During your lifetime, you will pay the taxes on any dividends, interest, or capital gains the account may generate. Provided you are not incapacitated, you even maintain the ability to change the designation of the Transfer on Death (TOD) as to who will receive the account, as the beneficiaries have no interest in the account until your passing. At the time of your death, your beneficiaries assume whatever interest you designated for them to receive. This method will allow the asset to bypass probate and go directly to your beneficiaries.

There are a couple of points to consider before deciding whether this is an appropriate method for distributing your estate.

  • Do you want your assets to go to only one beneficiary?

  • If designating a group of beneficiaries, will they be able to work together through the necessary steps in dividing the asset?

  • If you change your beneficiaries often and do not want to continually update your Last Will and Testament, this can be a cost-effective method.


If you answered yes to any of the above, then Transfer on Death (TOD) designation may be the choice for you.

On the other hand, a Transfer on Death (TOD) designation is probably not a good choice if you:

  • Want to create a Trust with restrictions and control how the asset is used and/or distributed over a specific period of time.

  • Have an overall long-term plan or desire to leave an enduring legacy.

  • Need to plan for a number of possible scenarios existing at your death.


When property is designated under a Last Will and Testament or Trust instrument, there is a person of authority (Executor or Trustee) whose job is to oversee the gathering of the assets, paying of bills, and distributing the assets based on the distribution scheme you have put into the document. By giving the Executor or Trustee the authority to implement your distribution plan, it will avoid disagreements among the heirs as to the division of the assets, particularly assets that are not easily divided.

A Transfer on Death (TOD) is a simple form to fill out, which is why it works well for fairly simple situations. Understand that a Transfer on Death (TOD) designation bypasses your estate, meaning anyone listed in your Last Will and Testament and not on your Transfer on Death (TOD) designation will not receive a part of that asset. As always, read any form thoroughly so that you understand what you are signing to prevent hurt feelings or accidentally leaving someone out of your estate.

Before signing a Transfer on Death (TOD), it would be wise to talk to an estate planning attorney to make sure that your estate is distributed your way.