For many New Yorkers, investment and brokerage accounts make up a significant portion of their wealth. These accounts often hold stocks, mutual funds, ETFs, or bonds that can appreciate in value over time. One of the simplest ways to ensure these assets pass smoothly to loved ones is by using a Transfer-on-Death (TOD) security account.
A TOD designation allows your investment account to transfer directly to a named beneficiary upon your death, bypassing probate entirely. While often overlooked, this planning tool can save your heirs time, legal fees, and administrative burdens.
What Is a Transfer-on-Death Security Account?
A Transfer-on-Death security account is a brokerage or investment account that allows you to name one or more beneficiaries to receive the assets when you die. The designation is revocable, which means you can change or remove beneficiaries at any time during your life.
Unlike joint ownership or adding a child to an account, TOD designations do not give the beneficiary any ownership or control while you are alive. You remain the sole owner and can invest, withdraw, or close the account freely.
Why TOD Accounts Avoid Probate
In New York, when someone dies owning assets in their individual name with no beneficiary designations, those assets must go through probate. Probate can take months or even years, depending on the estate’s complexity.
A TOD account avoids probate because the financial institution is legally allowed to transfer the account directly to the beneficiary once it receives a death certificate and required paperwork. No court involvement is needed.
This makes TOD designations especially useful for:
- Brokerage accounts
- Mutual fund accounts
- Certificates of deposit at certain institutions
- Treasury bonds or investment products that allow registration in TOD form
Avoiding probate can help beneficiaries access funds faster and reduce overall estate administration costs.
How to Set Up a TOD Account
Setting up a TOD designation is usually simple. Most financial institutions provide a beneficiary form that allows you to specify primary and contingent beneficiaries.
When establishing a TOD designation, consider the following:
- Use full legal names instead of nicknames
- Include backup beneficiaries in case a primary beneficiary dies first
- Review beneficiary designations after major life changes, such as marriage, divorce, or the birth of children
Once the form is filed, the designation becomes effective immediately and remains in place unless you update it.
What Happens After You Die
When the account owner dies, the beneficiary must contact the financial institution and provide:
- A certified death certificate
- Identification
- Any required claim forms
Once approved, the institution can transfer the securities to the beneficiary’s account or distribute cash according to the beneficiary’s instructions.
If multiple beneficiaries are named, the institution divides the account according to the percentages you specified. You can also name “per stirpes” beneficiaries if the institution offers that option, allowing a deceased beneficiary’s share to pass to their descendants.
TOD Accounts vs. Joint Accounts
Some people add a child or relative as a joint owner to avoid probate, but that approach carries risks. A joint owner’s creditors could reach the account, and the joint owner gains legal rights to withdraw funds immediately.
A TOD account avoids these problems because:
- Beneficiaries have no rights during your life
- Creditors of beneficiaries cannot attach the account
- You retain complete control and ownership
For these reasons, TOD designations are generally safer and more flexible than joint ownership.
When a TOD Account May Not Be the Best Choice
Although TOD accounts work well for many situations, they are not always the right option.
A TOD designation may not be ideal when:
- You want to leave different instructions for minors
- You need long-term financial management for a beneficiary
- You want to protect the inheritance from divorce, debt, or poor decision-making
- You prefer the asset to pass through a trust for tax or asset protection purposes
In those situations, it may be better for the TOD designation to name a trust rather than an individual.
Coordinating TOD Accounts With Your Estate Plan
A TOD designation overrides whatever your will says. If your will and your beneficiary forms conflict, the form controls the transfer. For example, if your will leaves everything equally to your children but your TOD form lists only one child, only that child receives the account.
Speak to an Attorney
A Transfer-on-Death security account can be a powerful way to simplify asset transfers and reduce probate in New York. At the Law Offices of Juliet Cohen, P.C., we can help you determine whether TOD designations fit your goals and ensure they work properly with your full estate plan. Our attorneys can guide you in selecting beneficiaries, coordinating accounts, and protecting your family’s financial future.
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