Payable-on-death and transfer-on-death accounts

Most banks and brokerages allow a beneficiary to be named on an ordinary account. The mechanism is simple, free and under-used.

How it works

A payable-on-death designation on a bank account, or a transfer-on-death registration on a brokerage account, names who receives the balance when you die.

During your lifetime nothing changes. The named beneficiary has no rights, no access and no ability to interfere, and you can change or revoke the designation at any time.

On death, the beneficiary produces a death certificate and identification, and the account passes directly to them without probate.

The process typically takes days rather than the months a probate estate requires.

Why it is useful

Speed. Funds are available quickly, which matters when funeral costs and immediate expenses arise before an estate is administered.

Cost. There is no fee to add a designation and no probate cost on the asset.

Simplicity. A form, completed at the institution.

Privacy. The transfer does not appear in a public probate file.

For a household whose assets are a home held jointly, retirement accounts with named beneficiaries and a few bank accounts, adding designations to the bank accounts can eliminate probate entirely.

The limitations

No contingency planning. Most forms allow a beneficiary and sometimes a contingent one, and little more.

They cannot stage distributions, provide for a minor, or set conditions.

Minors. Naming a minor produces the same problem as elsewhere: a court-supervised arrangement and outright receipt at the age of majority.

Nothing is left for debts. A significant risk.

Where every account passes directly to beneficiaries, the estate may have no funds to pay final expenses, debts and taxes.

The executor is then left with obligations and no money, and may have to pursue beneficiaries for contribution — which state laws address inconsistently.

Leaving at least one account in the estate, sufficient to cover expected liabilities, avoids this.

Unintended division. Where different accounts name different beneficiaries, the eventual split depends on relative account balances at death, which is not what anyone planned.

Someone who named one child on a savings account and another on an investment account may produce a very uneven outcome.

Coordination failures. These designations override the will, so a will dividing everything equally does not correct an uneven set of account designations.

Transfer-on-death deeds

An extension available in a number of states.

A recorded deed naming who receives real property on death, without transferring any present interest.

The owner retains full control, can sell or mortgage the property, and can revoke the deed.

Where available, this is a straightforward way of keeping a home out of probate without the cost of a trust.

Availability and formalities vary, and the interaction with mortgages, Medicaid recovery and co-ownership is worth checking before relying on it.

Joint ownership as an alternative

Frequently used and carries risks the designation route does not.

Adding an adult child as joint owner of an account gives them immediate access, exposes the funds to their creditors and to a divorce, may constitute a taxable gift, and can affect the surviving owner's own benefit eligibility.

It also passes the whole account to that person on death regardless of what the will says, which frequently disinherits other children by accident.

A payable-on-death designation achieves the intended result without any of these consequences, and it is almost always the better choice.

The review discipline

The same as for other designations.

List every account. Confirm the designation in writing with each institution. Check that the overall division matches your intention. Ensure something remains available to the estate for expenses.

And revisit after any significant change in family circumstances.

Setting one up

The process, which is simpler than most people expect.

Ask the institution for their beneficiary or transfer-on-death form. It generally requires the beneficiary's full name, date of birth and relationship, and sometimes their identifying number.

There is normally no fee and no requirement to notify the beneficiary, though telling them is sensible so they know the account exists.

Obtain written confirmation that the designation has been recorded, and keep it.

Forms submitted and not processed are a genuine and recurring problem, and the confirmation is the only evidence that the instruction was received.

General information only, not legal or tax advice. Availability and rules vary by state — consult a qualified attorney about your own circumstances.