Legal Definitions - transfer-on-death (TOD)

Transfer-on-Death (TOD) is a legal designation that allows an asset owner to name a specific beneficiary who will automatically receive that asset upon the owner's death, without the need for a court-supervised probate process. This mechanism ensures a direct and often quicker transfer of ownership. During their lifetime, the owner retains complete control over the asset, including the right to sell it, change the beneficiary, or revoke the TOD designation entirely. The named beneficiary has no ownership rights or access to the asset until the original owner passes away. TOD designations can apply to various types of property, such as real estate, investment accounts, or vehicles, depending on the laws of the relevant state.

• Example 1: Real Estate
  Maria owns a house and wants to ensure her son, David, inherits it directly without the complexities and delays of probate. She executes a transfer-on-death deed, naming David as the beneficiary.

  Upon Maria's death, ownership of the house will automatically transfer to David. Maria retains full control of the property during her lifetime – she can sell it, mortgage it, or change the beneficiary at any time. David has no claim to the house while Maria is alive, but upon her passing, the property becomes his without needing to go through a probate court.

• Example 2: Investment Account
  John has a substantial investment portfolio with a brokerage firm. He wishes for 50% of the account's value to go to his alma mater's scholarship fund and 50% to his niece, Sarah. He completes a TOD designation for his brokerage account, specifying these beneficiaries and percentages.

  When John passes away, the brokerage firm will distribute the specified portions of his account directly to the university and Sarah, bypassing probate. John can continue to manage his investments, withdraw funds, or change beneficiaries throughout his life. The beneficiaries only gain access to the funds after his death.

• Example 3: Vehicle
  Aunt Carol owns a vintage convertible that she wants her nephew, Mark, to have after she's gone, as he shares her love for classic cars. In a state that permits it, she registers the vehicle with a transfer-on-death designation, naming Mark as the beneficiary.

  Carol maintains full ownership and use of the car during her lifetime. She can sell it or change the beneficiary whenever she wishes. Upon her death, the car's title will transfer directly to Mark, avoiding the need for the car to be included in her probate estate.