Transfer on Death (TOD)

TOD registrations work for taxable brokerage accounts, mutual fund accounts, and in many states for real estate and vehicle titles — though real estate TOD is not universally available and varies significantly by state. For investment accounts, adding a TOD beneficiary is typically handled through the brokerage's account settings, requiring no legal documentation beyond the designation form.

When the account holder dies, the named beneficiary contacts the brokerage firm with a death certificate and their own identification. The securities are transferred in kind — meaning the beneficiary receives the actual investments rather than a cash liquidation — allowing them to decide when and whether to sell. This in-kind transfer preserves the step-up in cost basis that assets receive upon death, potentially eliminating capital gains taxes on appreciation that accumulated during the original owner's lifetime.

The step-up in basis is one of the most valuable tax features available through proper estate planning. Under current US law, when a beneficiary inherits an asset, its cost basis is reset to the fair market value on the date of death. If the original owner held a stock purchased at $10 that is worth $100 at death, the $90 of appreciation escapes capital gains tax entirely — the beneficiary's basis is $100, and they only owe gains on appreciation above that amount.

TOD designations must be reviewed periodically. If a named beneficiary predeceases the account holder and no contingent beneficiary is listed, the account may pass through the estate and into probate. Divorce, remarriage, and the birth of additional children are common life events that warrant an immediate review of all TOD registrations across brokerage, bank, retirement, and insurance accounts.