Transfer on Death (TOD)

Definition - What does Transfer on Death (TOD) mean?

Transfer on death (TOD) is a legal agreement by an account owner for their investment account that transfers the ownership of certain assets in the account to named beneficiaries upon the account holder's death, bypassing probate. In order for the named beneficiaries to gain control of the account, they need to show an original death certificate of the account owner. The transfer on death beneficiary can then access the assets immediately after the owner’s death because they do not require the probate process for transfer of ownership. For those with the means, transfer on death can be a good way to provide survivors with a source of funds to pay for funeral expenses and other costs, acting much like the death benefit in a life insurance policy, only without premiums or restrictions.

Insuranceopedia explains Transfer on Death (TOD)

Transfer on death accounts can have more than one account holder. Upon the death of one of the account holders, the remaining assets in that joint account are transferred to the remaining account owner, and not the beneficiaries. The beneficiaries will only take control of the account after the death of the last account owner. Regardless of what the account owners will or trust says, the proportions of the assets that the beneficiaries will receive can either be shared equally or shared as per the specifications of the owner, in the owner's beneficiary designation form.

In case one of the beneficiaries dies before the account owners, the remaining assets will be paid proportionally to the remaining beneficiaries after the death of the account owner. If there is one beneficiary, and he or she dies before the account owner, then the remaining assets will become part of the owner's probate assets. These probate assets will then require a probate court proceeding so that the assets can be transferred to their rightful heirs. Also, if there is no named transfer on death beneficiary, the account assets will be subject to probate.

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