How do transfer-on-death accounts pass property to a beneficiary?

Transfer-on-death (TOD) accounts are a mechanism used to pass assets directly to a designated beneficiary upon the account owner's death, effectively bypassing the probate process.12

When an account is set up with a TOD designation, the ownership of the assets—typically investment or brokerage accounts—transfers automatically to the named person or entity once the owner passes away. This process is similar to payable-on-death (POD) designations, which are commonly used for bank accounts, certificates of deposit, and money market accounts.2

By utilizing these designations, individuals can ensure that their assets are distributed according to their wishes without the time-consuming and potentially costly court-supervised probate process. However, it is important to note that because these assets transfer directly to the beneficiary, they may not be available to the executor to pay for final debts or estate expenses. Consequently, careful estate planning is recommended to ensure that sufficient funds remain to settle the estate's obligations.12