Estate Planning 101

Transfer on Death: Everything You Need to Know

Transfer on Death (“TOD”) provisions let you pass on your assets to beneficiaries without having to go through probate. They’re subtly among the most important estate planning tools available.
January 11, 2024

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Do you have a bank account? 

Nearly 95% of Americans do. 

If you are one of them (and be honest here) do you know exactly what is going to happen to that bank account when you die? 

Could you name the recipient of funds when you die? 

Are you 100% sure about the answer? Is anyone at all named? 

Perhaps most importantly: has your bank recently reached out to you to ask for an update on this information? 

The same list of questions can apply to real estate that you own.

That’s why Snug exists: to use people-centered tools to help you get a handle on these questions and update your answers accordingly. 

Beyond wills: why TOD provisions can be a major part of your estate plan

Chalk it up to TV and movies, but there is a popular perception that your entire estate plan, i.e. the rules for the ultimate disposition of all your assets, is contained in one clean will document.

Then when you die, that will is read by a lawyer in a wood-paneled office and your assets get distributed according to the will. For most people, this couldn’t be further from the truth. 

In fact, a ton of estate planning takes place outside of a will, or even a trust.  That bank account you open at age 18 or 22, and the forms you fill out at that time, may ultimately become a major part of your estate plan.

Read on to find out more. 

Types of Transfer on Death Instruments

The most basic TOD instruments are bank, credit union or other investment accounts holding cash or securities assets. 

A TOD beneficiary is simply named when these accounts are opened and can be easily changed by filing paperwork at a branch or in the ‘settings’ section of the online account.  

These accounts can have multiple beneficiaries: a “primary” beneficiary and “secondary” (or “contingent”) beneficiaries, who will be next in line to receive the account if the primary beneficiary dies, can’t be found or refuses it.

Once the account owner dies, the TOD beneficiary automatically receives the proceeds of the account, which transfer outside of any will and without going through the court probate process.

In general, this situation is very straightforward, although some special consideration should be given to situations like leaving an IRA for a child or leaving too much money to a relative with special needs, as it may impact their government benefits. 

The simplicity of the TOD can help you avoid the cost and burden of a formal will probate process, in which your will is evaluated by a court.  

Probate is estimated to cost 3% to 8% of the value of your estate and in places with especially burdensome processes, like California, the process costs at least 4% off the bat.  This is not to mention the average cost for a lawyer to draft the will. 

There are drawbacks to TOD too. Life can change quickly and you need to remember to change a TOD with it! 

Imagine this scenario: you get married and open a bank account naming your husband as the TOD beneficiary.  

Three years later, you get divorced but forget to change the TOD beneficiary from your now-ex-husband to your sibling.  

If you pass away before changing the TOD, depending on the fine print, the bank account may go directly to your ex-husband!

Or the inverse situation can happen. 

Maybe you are living as a bachelor and have one of your parents listed as your TOD beneficiary. Three years later you are married with two children. You would likely want the account funds to go to your wife to help her take care of your children!

Transfer on death is different to joint ownership

TOD must be distinguished from joint ownership. Sometimes these two options are right next to each other in the settings on a bank website. But they have profoundly different consequences. 

Most importantly, whereas TOD can be easily changed or revoked, joint ownership gives the named party an immediate interest in the bank account that can be complicated to unwind if you later change your mind. 

In general, that ‘fine print’ in the account agreement will control the outcome. If the account agreement is unclear, your state laws will apply.  

For example, in New York, if the account agreement is silent on the issue, then a divorce automatically revokes the TOD designation to your ex-spouse. But this is not the case in every state. 

A will can generally override this problem, but sometimes the bank will distribute the money because they have no way of knowing what your will says. 

Joint accounts can also have TOD beneficiaries. When the first holder dies, the account passes to the joint owner. When they die, the account is transferred to the beneficiary.

What if your transfer on death beneficiary dies?

As we noted earlier, assets can have more than one TOD beneficiary. If you nominate a secondary beneficiary, they'll receive the asset in question if the primary beneficiary dies before you do.

If all the named beneficiaries die before you do, the asset will be included with all the other items in your estate. They'll go through probate and be distributed in accordance with what's detailed in your will.

Creditor protection: do transfer on death accounts form part of your estate?

Although nominating transfer on death beneficiaries keeps your assets out of probate, those assets still form part of your estate. And that means that TOD gives you limited protection from creditors.

If you have unpaid debts when you die, creditors can still make a claim against the TOD assets, which means your beneficiaries might not get the full value of those assets.

For stronger protection from creditors, trusts are often a more suitable estate planning instrument.

Avoid conflicts between your will and TOD provisions

Having a will that conflicts with a TOD account can create litigation and logistical nightmares. For example, in a Florida case, the court ruled that clear TOD provisions giving to one particular child overrode a general provision in a will splitting the pot equally between all five children. 

Banks don’t have any incentive to ask you to update your TOD designation. In fact, if it is left blank, the bank generally benefits, because it gets to keep the funds while the probate process plays out! 

By stepping in to remind you to review your estate planning documents, Snug can help avoid situations like this. Just one way Snug makes it surprisingly easy to create your estate plan.

Tax and Debt Implications of TOD

Assets you pass on through Transfer on Death are still subject to estate taxes, even though they’re kept out of probate.

Many states don’t levy any estate taxes. And federal estate taxes only apply to estates worth more than $12,060,000.

Estate taxes by state

(Source: AARP)

TOD assets are also subject to claims from creditors, both during your lifetime and after. 

Transfer on Death and Real Estate

Where TOD instruments become more complicated is when they are tied to real estate. 

These types of deeds work much the same as naming a TOD beneficiary for a bank account. 

Upon death, the real estate just passes smoothly to the TOD beneficiary, outside of the probate process. 

These deeds can also generally be made revocable, so that you can change your mind if you want to leave the real estate to someone else.

Broadly speaking, around 30 states allow Transfer on Death for real estate.


In states that don’t allow TOD for real estate, the probate court will ignore any TOD declarations for real estate in your will. 

A court case from Iowa provides a prime example. In that case, a family listed their three children as TOD beneficiaries to receive farmland. 

But TOD deeds aren’t legal in Iowa! So the court said that instead of passing directly to the three children, the deed was void and the land had to go back into the estate probate process. 

Because the will did not address this unforeseen situation, the ‘default’ intestacy laws of Iowa applied instead of the terms of the deed. And just imagine the legal fees to litigate the situation!

Remember that, if you transfer real estate through a TOD deed, the beneficiary will be responsible for any mortgage payments and property taxes owed.

These ‘horror’ stories are exactly what Snug can help avoid: by using Snug to harmonize multiple generations of your family and the various estate planning documents that go with them, these situations can be avoided.

Lady Bird Deeds

In Florida, Michigan, Texas, Vermont and West Virginia, “Ladybird deeds” — also known as "enhanced life estate deeds" — are an alternative to Transfer on Death deeds.

Broadly, the two are similar. Both transfer real estate directly to a beneficiary, thereby keeping the property out of probate.

That said, there are differences. But these differences are nuanced, and they vary from state to state.

For example, in Texas, you can’t name a secondary (or “contingent”) beneficiary when using a Ladybird deed. When using a Transfer on Death deed, you can.

Similarly, you can’t use power of attorney to create a Transfer on Death deed, but you can use it to create a Ladybird deed.

Get your estate plan started

Transfer on Death is just one part of the estate planning puzzle. If you’re ready to get going with your own estate plan, you can start one quickly and affordably with Snug.