Transfer on Death (TOD)
Candlefocus EditorTOD is regularly used with certain types of financial assets, such as a savings account, investment account, real estate, life insurance policies, vehicles and 529 plans. It is important to note that Transfer on Death applies only to non-retirement accounts, so IRAs and 401k plans expressly do not qualify.
There are a few steps that the owner of the asset must take for a TOD to be successfully executed. First, it is key to make sure the asset allows for a TOD. If the title or deed of the asset does not have a TOD designation, then it can't be used for this purpose. Second, the owner must register a beneficiary with the asset holder. The process for doing this varies from one asset holder to the next, but will generally entail the owner filing out a TOD disposition agreement and providing a government issued identification.
Upon the death of the owner, the asset is automatically transferred to the beneficiary without any probate proceedings. The beneficiary will receive the asset without any delay, saving them money and time. Another great advantage of TOD is that the transfer is confidential and not part of any public record.
It is important to regularly review your TOD designation. It is also key to think about what would happen if the primary beneficiary passes away before the owner. The owner of the asset should consider listing a contingent beneficiary in case something happens to the primary beneficiary.
Transfer on Death (TOD) is an effective way to ensure that important assets are transferred to the intended beneficiary upon the owner’s death. When executed properly, TOD saves time and money associated with probate, and assets are passed on in a confidential and secure manner.