Transfer on Death (TOD)

The transfer on death designation lets beneficiaries receive assets at the time of the person's death without going through probate. This designation also lets the account holder or security owner specify the percentage of assets each designated beneficiary receives, which helps the executor distribute the person's assets after death. With TOD registration, the named beneficiaries have no access to or control over a person's assets as long as the person is alive.

It is important beneficiaries are aware of the assets they will inherit so they may prepare accordingly ahead of time.

Individual retirement accounts, 401(k)s and other retirement accounts are TOD. An unmarried person may choose anyone as a beneficiary, but a married person's spouse may have rights to some or all of a retirement account upon death. A surviving spouse has more options for withdrawing money than other beneficiaries do. The named beneficiary may claim the money directly from the account custodian.

The Uniform Transfer on Death Securities Registration Act lets owners name beneficiaries for their stocks, bonds or brokerage accounts. The process is similar to a payable-on-death bank account. When the account owner registers with the stockbroker or the company, the investor takes ownership in beneficiary form. When the papers showing ownership are issued, they list designated beneficiaries.

After receiving notification of an account holder's death, the brokerage firm requests a death certificate, current court letter of appointment, stock power of attorney, affidavit of domicile or other documents as proof of death. The required documents depend on the type of account, such as a single or joint account, whether one or both account holders are deceased, and whether the account is a trust account and the trustee or grantor is deceased.

Firms may reject documents if they are not signed in the appropriate capacity, such as by the executor, survivor or trustee; if the forms are completed incorrectly, such as by transposing certificate numbers; if the information has been altered; or if the documents are outdated or missing the necessary court seal. For these reasons, a person must pay close attention when completing and submit forms.

In most cases, a new account is set up for the beneficiary, and the deceased person's securities are transferred. Typically, no buying, selling, transferring of the account to another firm or other activities may occur until the account is open and legal authority has been established.

Opening a new account involves filling out an application and having the beneficiary provide information about himself and making decisions about the account. Brokers use the information to learn about the account owner, meet his financial needs, and follow legal and regulatory obligations.