Downs Law Firm, P.C.

Transfer on death

What is a Transfer on Death Account?

Please Share!

Transfer on death (TOD) accounts (also known as Totten trusts, in-trust-for accounts and payable-on-death accounts) allow spouses to pass small estates in a simple, convenient way.

Most married couples have at least one Transfer on Death Account (TOD Account), where they share a bank account from which either spouse can write checks and add or withdraw funds without approval from the other. When one spouse dies, the other owns the account. The dead spouse’s will, or lack of one, does not change that.

This account is wholly owned by both spouses while they’re both alive. As a result, a creditor of one spouse could make a claim against the entire account, without any approval or say from the other spouse. Either spouse could also withdraw all the money in the account and not tell the other. This basic joint account is a TOD Account, as it offers a right of survivorship, but joint account holders can designate who gets the funds after the second person dies.

Kiplinger’s recent article, “How Transfer-on-Death Accounts Can Fit Into Your Estate Planning,” examines the usefulness of transfer on death (TOD) accounts (also known as Totten trusts, in-trust-for accounts, and payable-on-death accounts).

We are all familiar with this type of account in one form: life insurance is paid out by beneficiary designations. In some states, a similar designation can allow a TOD beneficiary to receive an auto, house, or even investment accounts. Retirement accounts, like IRAs, Roth IRAs, and employer plans, transfer this way by federal laws that have specific rules for designated beneficiaries.

After a decedent’s death, taking control of the account is a simple process. What is typically required is to provide the death certificate and a picture ID to the account custodian. Although Transfer on Death transfers avoid the probate process, TOD accounts are still part of the decedent’s estate for tax purposes and may be subject to income, estate, and/or inheritance tax. Under augmented estate laws, TOD accounts are also not out of reach for a surviving spouse. See

Account custodians (such as financial institutions) are often cautious, because they may face liability if they pay to the wrong person or don’t offer an opportunity for the government, creditors, or the probate court to claim account funds. Some states allow the beneficiary to take over that responsibility by signing an affidavit. The bank will then release the funds and the liability shifts to the beneficiary.

If you’re a Transfer on Death account owner, you should update your account beneficiaries and make certain that you coordinate your last will and testament and TOD agreements, according to your intentions. If you fail to do so, you could unintentionally add more beneficiaries to your will and not update your TOD account. This would accidentally disinherit those beneficiaries from full shares in the estate, creating probate issues.

TOD joint account owners should also consider that the surviving co-owner has full authority to change the account beneficiaries. This means that individuals whom the decedent owner may have intended to benefit from the TOD account (and who were purposefully left out of the Last Will) could be excluded. It would not be the appropriate planning tool if a beneficiary would need help managing money or has special needs.

If the decedent’s will doesn’t rely on TOD account planning, and the account lacks a beneficiary, state law will govern the distribution of the estate, including that TOD account. In many states, intestacy laws provide for spouses and distant relatives and exclude any other unrelated parties. This means that the TOD account owner’s desire to give the account funds to specific beneficiaries or their descendants would be thwarted.

Ask an experienced estate planning attorney if a Transfer on Death account is suitable to your needs, and make sure that it coordinates with your overall estate plan.

Reference: Kiplinger (March 18, 2019) “How Transfer-on-Death Accounts Can Fit Into Your Estate Planning”

Suggested Key Terms: