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Jan 15, 2022 | Estate Planning, Q&A

Should you use a transfer on death (TOD) designation for a non-retirement account?

Tags: Heirs

Many people are familiar with the need to designate beneficiaries for IRA, 401(k), 403(b) and other types of retirement accounts. What about non-retirement or “non-qualified” accounts? A Transfer on Death (TOD) designation lets named beneficiaries receive assets at the time of a person’s death. This keeps them from having to go through the probate process. In addition, they are generally free to implement, and it is relatively simple to change beneficiaries when necessary.

While there are advantages to probate, the process can be costly, time consuming, and is public. For these reasons, people often prefer to avoid the process or to minimize the assets that must go through it. As with any beneficiary designations, it is important to revisit them periodically. This helps ensure that they account for life changes and continue to reflect your wishes. A TOD is different than a Power of Attorney (POA) and does not entitle the beneficiary to access or exercise control of your assets while you are living.

Transfer on death (TOD) ACCOUNTS AND WILLS

TOD accounts do not eliminate the need for careful estate planning. This is particularly true for larger or more complex estates where a Will or Trust(s) may be more appropriate. Arranging for care of disabled beneficiaries is an example of a situation that might be better addressed through a Trust. A TOD takes precedence over a Will, and this can cause problems when the two conflict. If you have already done some estate planning, you should ensure that establishing a new TOD does not undo what you have already put in place, so we recommend consulting with your estate attorney before making any changes to account titling.


When naming a minor as your beneficiary on a TOD account, it is important to understand how to name a custodian to make decisions on behalf of the child. It is also critical to have funds available for final bills and final tax payments upon your death. If all your assets pass to beneficiaries through TOD and Payable on Death (POD) accounts (which are used for bank accounts), then the Executor of your estate may not have sufficient funds to cover these final expenses without going back to the beneficiaries. This is not a problem if the Executor is the sole beneficiary, but it could create unintended complications when that is not the case nor appropriately planned for.

A TOD can be an effective tool to get assets to your beneficiaries quickly and cost-effectively upon your death when implemented appropriately. Please let your Godsey & Gibb advisor know if you have any questions about TOD registrations or email us at [email protected].

Author: Peter Braden, CFP® | Wealth Management Advisor
Written: January 15, 2022