How Transfer-on-Death Accounts Can Fit Into Your Estate Planning
Also known as joint accounts, these types of accounts let their owners pass on small estates in a simple way.


My wife and I, like most married couples, share a bank account from which either of us can write checks and add or withdraw funds without consent from the other. If my wife outlives me, the account will be hers alone, which my Last Will can’t change.
The account is wholly owned by both of us while we’re both alive, which means that a creditor of mine could make a claim against the entire account without regard for my wife or her interests. In addition, either of us could withdraw all the money in the account and not inform the other. This basic joint account offers a right of survivorship. However, can joint account holders designate who gets the funds after the second person dies?
The answer is yes. Transfer on death (TOD) accounts (also known as Totten trusts, in-trust-for accounts and payable-on-death accounts) allow spouses to pass small estates in a simple, convenient way.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
How TOD accounts work
TOD accounts are provided for under state law as part of the account custodian’s contract with the account owner — though both state laws and the terms of a TOD account agreement vary widely. It’s important to take special care if the funds in a TOD account are subject to community property laws as your spouse’s property interest in the account might need to be released if he or she is not the beneficiary.
In some states, this arrangement can permit a TOD beneficiary to receive an auto, a house or even investment accounts. However, retirement accounts, including IRAs, Roth IRAs and employer plans, are not eligible, as they’re controlled by federal laws that outline specific rules for designated beneficiaries.
Beneficiaries of TOD accounts can include persons beyond the surviving spouse, such as children, other relatives and friends, although state law offers special rights that protect the surviving spouse. The spouse of a decedent can legally claim a spousal share of assets, which is usually half. In addition, the spouse must give written consent whenever a TOD account agreement directs account funds to someone in addition to, or other than, the spouse.
You are clearly solely responsible for using TOD accounts and the outcome, whether it is what you intend or not. Most TOD agreements include language that you indemnify the bank from any claims if the account is disallowed, you move to another state, if your beneficiary designations conflict with your estate plan, or you fail to update them.
Transferring control
Following the decedent’s death, taking control of the account can be a fairly simple process — all that might be required is to provide the death certificate and a picture identification to the account custodian. Because TOD accounts are still part of the decedent’s estate (although not the probate estate that the Last Will establishes), they may be subject to income, estate and/or inheritance tax. TOD accounts are also not out of reach for the decedent’s creditors or other relatives.
Some TOD account agreements stipulate that the beneficiary confirm by affidavit that the TOD account owner was free of debt before collecting the money. An agreement may also require that the decedent’s domicile at death was the state in which the TOD account is located. If not, the custodian can allow payment only to the probate estate.
Possible hurdles
Account custodians are often cautious because they may face liability if they pay to the wrong person or don’t offer an opportunity for tax authorities, creditors or the probate court to claim account funds. Some states allow the beneficiary to take over that responsibility by executing an affidavit, at which point the custodian releases the funds and shifts liability to the beneficiary. It’s possible that a custodian can legally refuse to honor a proper beneficiary request for distribution without additional proof or a court order.
The agreement can include terms to place responsibility solely on you and your decedent estate. By placing this language in an agreement, the custodian insulates itself from any costs or liabilities. As owner of a TOD account, you are ultimately responsible for the account’s use and the outcome, whatever it may be.
Obviously, having more than one beneficiary can make claiming the account a more complicated process. Some custodians require equal beneficiary shares. If multiple beneficiaries are named, most TOD agreements allow the account owner to designate a different percentage to each. In the event that one beneficiary predeceases the owner, that person’s share is divided among the remaining named beneficiaries, pro rata. If a TOD account has no beneficiary, it will then pay out to the estate, in which case the decedent’s Last Will takes control.
Working in coordination
If you’re a TOD account owner, you should take care to update your account beneficiaries and ensure that your coordinated Last Will and TOD agreements fulfill your intentions. By being inattentive, a person might accidentally add additional beneficiaries to their Last Will but not update their TOD account. By doing so, the decedent would accidentally disinherit those beneficiaries from full shares in the estate, opening up the possibility of them making a claim against the TOD account in probate court.
On the other hand, if it’s the owner’s intent to exclude some beneficiaries from the TOD account, the Last Will can be written to include a provision allowing the decedent’s TOD agreements to stand separate from the terms of the Last Will. But if that’s your plan, be careful: The decedent estate then likely would become liable for TOD account taxes and any creditor claims, resulting in reduced shares for any estate beneficiaries.
Another thing for TOD joint account owners to consider is that the surviving co-owner has full power to change the account beneficiaries, which means that persons whom the decedent owner may have intended to benefit from the TOD account (and who were purposefully left out of the Last Will) could be excluded.
If the decedent’s Last Will doesn’t rely on TOD account planning, and the account lacks a beneficiary, then state law will dictate distribution of the estate, including that TOD account. In most states, intestacy laws provide for spouses and distant relatives and exclude any other unrelated parties. This means that the TOD account owner’s intent that the account funds would go to specific beneficiaries, or their descendants, would be thwarted.
The TOD agreement will likely include a provision alerting you that the bank has not advised you whether using the TOD account is suitable to your needs, or even legally valid, and directs you to seek advice from your tax or estate planning professionals. You should take that advice.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Timothy Barrett is a Senior Vice President and Trust Counsel with Argent Trust Company. Timothy is a graduate of the Louis D. Brandeis School of Law, past Officer of the Metro Louisville Estate Planning Council and the Estate Planning Council of Southern Indiana, Member of the Louisville, Kentucky, and Indiana Bar Associations, and the University of Kentucky Estate Planning Institute Committee.
-
Best Home Rental Websites and Apps 2025
The best home rental websites and apps, such as Rent.com, Apartment Guide, Airbnb and Vrbo, can make finding a home or vacation rental a whole lot easier.
-
Stock Market Today: Markets Chop Up More Trump Threats
Stocks are grinding to new highs on light summer volume, and bitcoin is only getting bigger.
-
Financial Pros Provide a Beginner's Guide to Building Wealth in 10 Years
Building wealth over 10 years requires understanding your current financial situation, budgeting effectively, eliminating high-interest debt and increasing both your income and financial literacy.
-
You're Divorced, But the Work Isn't Over: A Guide to Five Financial Tasks to Do ASAP
Once your divorce is settled, don't waste time. You've got to tie up some important loose ends or risk losing money and facing tax consequences.
-
Five Mistakes to Avoid in Your First Year of Retirement
Retirement brings the freedom to choose how to spend your money and time. But choices made in the initial rush of excitement could create problems in future.
-
I'm an Investing Expert: This Is How You Can Invest Like Warren Buffett
Buffett just invested $15 billion in oil and gas, and you can leverage the same strategy in your IRA to potentially generate 8% to 12% quarterly cash flow while taking advantage of tax benefits that are unavailable in any other investment class.
-
Integrity, Generosity and Wealth: A Faith-Based Approach to Business
Entrepreneurs who align their business and financial decisions with the biblical principles of integrity, generosity and helping others can realize impactful and fulfilling success.
-
How Much Income Can You Get From an Annuity? An Annuities Expert Gets Specific
Here's a detailed look at income annuities and the factors that determine your payout now and in the future.
-
Your Paycheck Stops in Retirement, But Your Life Doesn't: An Expert Guide to Planning for a Confident Future
Social Security will replace only about 40% of your salary, on average. A solid financial plan will help you plug the gap so you can rest easy in retirement.
-
Are You Jeopardizing Your Future to Help Your Adult Kids? An Expert Guide for How to Not Do That
If your adult child needs financial help, of course you want to provide it, but crafting a plan that also protects your financial and emotional well-being is vital.