Quick overview

Payable-on-death (POD) and transfer-on-death (TOD) designations are simple title or beneficiary changes you add to bank accounts, investment accounts, and—where allowed—real estate. When you die, the named person becomes the new owner or receives the proceeds directly, usually without court-supervised probate. These tools can reduce delay, lower legal fees, and preserve privacy for beneficiaries.

How POD and TOD actually work

  • POD: A bank or credit union account is retitled or a form is filed to name a payable-on-death beneficiary. At the account owner’s death, the bank pays the balance to the named beneficiary after the institution verifies the death certificate and the beneficiary’s ID.
  • TOD for securities: Many brokerages let you name a transfer-on-death beneficiary for brokerage accounts, mutual funds, or individual securities. The transfer generally follows the firm’s transfer-on-death paperwork and requires a death certificate.
  • TOD deed for real estate: A transfer-on-death deed (also called beneficiary deed) is available in many U.S. states and lets you name a beneficiary who receives title to real estate at your death without probate. Rules and formality vary by state; not all states have TOD deed statutes.

These transfers are property-specific. The designation governs only the account or asset where it’s filed; other assets without a beneficiary designation can still go through probate.

What types of assets commonly use POD and TOD

  • Bank, credit union, and savings accounts (POD)
  • Brokerage and investment accounts (TOD)
  • Individual stocks or mutual funds registered in an account with TOD language
  • Certificates of deposit (CDs) with POD or TOD instructions
  • Many state laws permit TOD deeds for real estate; check your state

Retirement accounts (IRAs, 401(k)s) typically use beneficiary forms but are handled under different rules—naming a beneficiary avoids probate, but tax rules still apply.

Benefits — why people add POD/TOD designations

  • Avoids probate for the designated asset: The asset passes directly to the beneficiary and, in many cases, is not subject to public probate filings.
  • Faster access: Beneficiaries can use funds or take title without waiting months for a probate court.
  • Lower costs: Probate fees and legal expenses can be reduced when fewer assets go through court supervision.
  • Simplicity: Most institutions provide simple forms; a TOD deed for real estate requires a recorded form but can be straightforward.

Limitations and important cautions

  • Not a replacement for a will or trust: POD/TOD covers only assets where the designation is properly recorded. A will still controls assets not titled with beneficiary designations and addresses guardianship for minor children.
  • Creditor and tax exposure: Assets passed by POD/TOD can still face creditor claims or estate tax where applicable (see below). They may also become part of the decedent’s estate for certain creditor or tax claims.
  • Conflicting documents: Beneficiary designations typically override instructions in a will. If you update a will but forget to update a beneficiary form, the old beneficiary designation will usually control.
  • State law differences: Whether a TOD deed is available and how it works varies by state—always check state statutes or consult an attorney.

Tax and creditor considerations (what beneficiaries should know)

  • Estate tax: Transfer by POD/TOD does not necessarily avoid federal estate tax if the decedent’s estate exceeds federal or state exemption thresholds. See the IRS for current estate tax rules (IRS: Estate Tax) (https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax).
  • Income tax: Generally, beneficiaries receive a step-up in cost basis for inherited assets such as stocks when they inherit through TOD (subject to current tax law). Retirement accounts have specific income tax rules when beneficiaries take distributions.
  • Creditors: In many states, creditors have a window to make claims against assets that pass outside probate. The protections and timelines vary by jurisdiction.

(Authoritative resources: see Consumer Financial Protection Bureau on probate and beneficiary forms (https://www.consumerfinance.gov/consumer-tools/estate-planning/probate/), and IRS guidance on estate taxation.)

Practical steps to set up POD/TOD correctly

  1. Inventory assets: List bank accounts, investment accounts, CDs, and real property you own. Note which already have beneficiary designations.
  2. Check institutional requirements: Banks and brokerages each have their own POD/TOD forms and procedures. Ask the institution for their exact form and identification requirements.
  3. For real estate, confirm state law: If your state allows a transfer-on-death or beneficiary deed, use the approved form and record it with the county recorder (requirements vary by state).
  4. Name primary and contingent beneficiaries: Always name at least one contingent beneficiary in case the primary predeceases you.
  5. Coordinate titles with estate documents: Ensure beneficiary designations agree with your will and any trusts. If not coordinated, beneficiary forms often control for the named asset.
  6. Keep records and notify beneficiaries: Store copies of designation forms safely and tell beneficiaries where to find them to speed access when needed.

Real-world examples (practical illustrations)

  • Bank account POD: A retired client added a POD beneficiary for a checking account. After their death, the named beneficiary presented the death certificate and received the funds directly from the bank in days rather than months under probate.
  • TOD deed for house: A homeowner in a state that permits beneficiary deeds recorded a TOD deed naming their child. At death the child recorded an affidavit and the recorded deed; title transferred without opening a probate file.

Common mistakes to avoid

  • Forgetting to update beneficiary forms after major life events (marriage, divorce, births, deaths).
  • Assuming joint ownership or a will controls everything—beneficiary forms and account titling often override wills.
  • Not naming contingents or updating successor beneficiaries for accounts where the primary beneficiary may die before you.
  • Using POD/TOD for complex estates where a trust would better handle tax planning or asset protection.

How POD/TOD fit with wills and trusts

  • Wills: A will controls only assets in your probate estate. Assets with POD/TOD designations normally bypass the will. That’s why you must coordinate beneficiary forms with your will’s provisions.
  • Revocable trusts: A living trust generally avoids probate for assets retitled into the trust. For larger or complex estates, funding a revocable trust may provide greater control (e.g., staged distributions, protection for beneficiaries) than POD/TOD designations.

For more on coordinating titling and beneficiary designations, see our guide “Titling and Beneficiary Coordination to Avoid Probate Surprises” (https://finhelp.io/glossary/titling-and-beneficiary-coordination-to-avoid-probate-surprises/). For broader probate avoidance strategies, see “How to Avoid Probate: Strategies and Tools” (https://finhelp.io/glossary/how-to-avoid-probate-strategies-and-tools/).

When POD/TOD may not be the best tool

  • If you need conditional distributions (for a beneficiary with special needs or to spread payments over time), a trust can provide more control.
  • If you want to protect assets from beneficiary’s creditors, divorces, or poor financial decisions, trusts or other strategies may be preferable.

Closing checklist before you sign forms

  • Confirm the asset accepts POD/TOD and get the institution’s official form.
  • Name primary and contingent beneficiaries with full legal names and birthdates where possible.
  • Coordinate with your will and any trust; update documents together.
  • Record a TOD deed properly with county records if you are transferring real estate.
  • Keep a clear copy of forms and tell at least one trusted person where they are stored.

Professional disclaimer

This article is educational and does not constitute legal, tax, or financial advice. Laws vary by state and facts vary by situation. Consult a licensed estate planning attorney or tax professional before making changes to account titles or transferring real property.

Sources and further reading

In my experience as a financial advisor, POD and TOD designations are low-cost, effective ways to move modest, well-titled assets to heirs quickly. For more complex estates or tax-sensitive situations, use them as one piece of a broader estate plan developed with an attorney and tax advisor.