What an Individual TOD Account Is

An individual TOD account (Transfer on Death) is a bank or brokerage account registered in one person's name with a named beneficiary who receives the money when that person dies. The account works like a regular checking, savings, or investment account during your lifetime—you control it, spend from it, and earn interest on it. When you die, the money passes directly to your beneficiary outside of probate, meaning it skips the court process and reaches them faster.

TOD accounts are different from joint accounts because you own the account alone. Your beneficiary has no access to the money while you're alive, no claim on it, and no legal say in how you use it. The beneficiary designation is what matters: when you die, ownership transfers automatically to whoever you named.

Not all banks and brokerages offer TOD registration. Some call it "payable on death" (POD) instead. The mechanics are the same—the difference is just the name the institution uses. You set it up when you open the account or add it to an existing account, usually by filling out a form and naming your beneficiary.

Key Takeaways

  • A TOD account is owned by one person during their lifetime and passes to a named beneficiary after death without going through probate court.
  • Your beneficiary cannot access or use the account while you are alive, even if they are named.
  • You can change or remove your beneficiary at any time as long as you are mentally competent, and you can spend all the money in the account without their permission.
  • The money reaches your beneficiary faster than it would through a will because it bypasses probate, though the exact timeline depends on the bank or brokerage.
  • Not every financial institution offers TOD accounts, so you need to ask your bank or brokerage whether they support this registration type.

How a TOD Account Differs from a Joint Account

The key difference is control and access. In a joint account, both owners can withdraw money, make deposits, and close the account at any time. In a TOD account, only you can do those things while you're alive. Your beneficiary is a named recipient, not a co-owner.

When you die, a joint account typically passes to the surviving joint owner by right of survivorship—the other owner automatically becomes the sole owner. A TOD account passes to your named beneficiary instead. If you have a joint account with one person and a TOD account naming a different person, they go to different people.

TOD accounts also avoid the problem of joint account disputes. If you add someone to a joint account, they legally own half of it (or their share), and they could potentially drain it or claim it in a divorce or lawsuit. A TOD beneficiary has no legal claim until you die, so the money stays fully under your control.

Setting Up a TOD Account and Naming Your Beneficiary

To set up a TOD account, contact your bank or brokerage and ask whether they offer TOD or POD registration. If they do, ask for the form. You'll typically fill out your name, the account type (checking, savings, money market, brokerage), and your beneficiary's full legal name and relationship to you.

Most institutions require your beneficiary's Social Security number or tax ID so they can verify identity and issue a 1099 form if the account earns interest or investment income. Some banks also ask for your beneficiary's address and phone number. You sign the form, and the account is registered as TOD.

You can name one person or multiple beneficiaries. If you name more than one, specify how the money should be split—equally, by percentage, or some other way. If you don't specify, most institutions split it equally among all named beneficiaries. You can change your beneficiary at any time by submitting a new form, as long as you are alive and mentally competent to make the change.

What Happens to the Money When You Die

When you die, your beneficiary contacts the bank or brokerage with a death certificate and proof of identity. The institution verifies the death and the beneficiary's identity, then transfers the account balance to the beneficiary. The timeline varies by institution—some complete the transfer within a few business days, others take one to two weeks.

The money does not go through probate court, which is the main advantage of a TOD account. Probate can take months or even years, and it costs money in court fees and attorney fees. A TOD transfer is usually much faster and costs nothing.

Your beneficiary receives the account balance as of the date of your death, including any interest or investment gains that accrued up to that point. If the account held investments, your beneficiary receives the current value of those investments, not the amount you originally deposited. If the account was overdrawn or had a negative balance, your beneficiary receives nothing—the bank may pursue the estate for the debt instead.

Taxes and Reporting After Death

Your beneficiary does not owe income tax on the account balance itself—that money was already taxed when you earned it. However, if the account earned interest or investment income in the year you died, that income is taxable to your estate or to you (depending on when it was earned). Your executor or the bank will issue a 1099 form reporting that income.

If the account held investments that gained value after you died, your beneficiary receives a "stepped-up basis," meaning the cost basis is reset to the account's value on the date of death. If your beneficiary sells those investments later, they only owe tax on gains that occurred after your death, not on gains that occurred while you owned them.

TOD accounts do not reduce your taxable estate for federal estate tax purposes. If your total estate exceeds the federal estate tax threshold (which varies by year and is currently very high), the TOD account value counts toward that total. State estate or inheritance taxes may also apply depending on where you lived and where your beneficiary lives.

Limits and Things That Can Go Wrong

Not all financial institutions offer TOD accounts. Credit unions, some smaller banks, and some brokerages do not support this registration type. If your bank does not offer it, you may need to move your account to one that does, or use a different tool like a payable-on-death will or a revocable living trust.

If you name a beneficiary but then create a will that names a different person to receive that account, the TOD designation overrides the will. The account goes to the TOD beneficiary, not to whoever your will says should get it. This can create conflict if your wishes change over time, so review your TOD designations whenever you update your will.

If your beneficiary dies before you do, the account does not automatically go to your beneficiary's heirs. Instead, the money becomes part of your estate and is distributed according to your will or your state's intestacy laws. You need to update your TOD designation if your named beneficiary dies.

If you become mentally incapacitated and cannot update your TOD designation, you are stuck with whoever you named. A power of attorney does not usually allow someone else to change your beneficiary designation—that power typically stays with you alone. This is another reason to review and update your designations regularly.

When a TOD Account Makes Sense

A TOD account is useful if you want a simple way to pass money to one person without probate, and you do not need that person to have access to the account while you're alive. It works well for a savings account you want to leave to a child, a sibling, or a spouse.

TOD accounts are less useful if you have a complex estate, multiple beneficiaries with different needs, or minor children. If you have young children, you may need a trust or a guardianship arrangement, not just a TOD account. If you have a spouse and adult children, you may want to split assets among them in different ways, which a single TOD account cannot do.

TOD accounts also do not replace a will. You still need a will to name an executor, to appoint a guardian for minor children, to leave personal property, and to handle assets that do not have a TOD designation. A TOD account is one tool among several for passing money to the next generation.

Frequently Asked Questions

Can my beneficiary access the money if I become sick or incapacitated?

No. A TOD beneficiary has no legal right to the account until you die. If you become incapacitated and need someone to manage your money, you need a power of attorney or a joint account holder, not a TOD beneficiary. A power of attorney lets you name someone to act on your behalf while you're alive.

What if I change my mind about who should get the money?

You can change your TOD beneficiary at any time by contacting your bank or brokerage and submitting a new beneficiary designation form. The new beneficiary takes effect as soon as the form is processed. There is no waiting period or penalty for changing your mind.

Do I have to tell my beneficiary I named them?

No, but it is a good idea. If your beneficiary does not know the account exists, they may not know to claim it after you die. Telling them also gives you a chance to explain why you chose them and to make sure they know how to contact the bank to claim the money.

What happens if I die without naming a beneficiary?

If you open a TOD account but never name a beneficiary, or if your named beneficiary dies before you do and you do not update the designation, the account becomes part of your estate. It will be distributed according to your will or, if you have no will, according to your state's intestacy laws. This means it goes through probate.

Can creditors or the IRS take money from a TOD account?

After you die, creditors and the IRS can make claims against your estate, which may include TOD accounts. However, the money does not sit in probate court where creditors can easily find it. Your beneficiary receives the money first, and creditors must pursue your estate separately. The timing and rules vary by state.