What is a Transfer on Death (TOD) designation?

A Transfer on Death designation allows you to name who will receive certain assets, such as a taxable investment account, after you pass away.

Think of it somewhat like naming a beneficiary on a retirement account. While you’re alive, you maintain control of the account and can generally change or remove the TOD designation. After you pass away, the account can transfer directly to the named beneficiary without going through probate.

That simplicity can make a TOD a very useful estate planning tool.

But simple doesn’t always mean appropriate.

A TOD generally controls where that specific account goes, regardless of what your will says. That’s why your beneficiary designations and estate plan need to work together.

There are also situations where leaving assets directly to someone may not be the best solution. Minor children, beneficiaries with special needs, someone who struggles managing money, or situations where you want more control over how and when assets are distributed may call for a trust or another estate planning strategy instead.

And most importantly, don’t set it and forget it.

Families change. Relationships change. Your financial situation changes. Your wishes may change.

A TOD can be a great tool. But like every financial planning tool, it’s only as good as how it’s used.