Name TOD Beneficiaries on an Account or Transfer it to a Trust

TOD beneficiaries vs transfer to trust | The Pollock Firm LLC

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One of the most common questions I get as an estate planning attorney is whether clients should name TOD beneficiaries on an account or transfer it a Trust. A TOD beneficiary designation means “Transfer on Death”. Some financial institutions also call this a POD designation (or “Pay on Death”).

Usually the people who name TOD beneficiaries on an account or transfer it to a Trust are trying to avoid probate. There are many ways to avoid probate, the trick is finding the best solution for you.

Imagine the following situation. Let’s say you have a person with $500,000 in a brokerage account. Usually brokerage accounts do not have beneficiary designations, but they can. Should the person name individual beneficiaries to receive the money upon their death? Should the person name a trust as a TOD beneficiary? Alternatively, should the person transfer ownership of the account to a revocable living trust, and remove the beneficiary designation?

The answer, of course, is a lawyer’s favorite response – it depends. Let’s discuss the pros and cons of each option.

Option 1: Naming Individuals as TOD Beneficiaries

  1. Pros
    • Least expensive option (because no trust is required).
    • Avoids probate.
  2. Cons
    • There is no central pot of money to pay bills.  So imagine naming Child A and Child B as beneficiaries, but they don’t get along.  Child A pays for your funeral, or ongoing costs for maintaining the house. How does Child A get reimbursed from Child B?  Who’s going to pay income taxes, estate taxes, or inheritance tax if there are any?
    • Often, there is a massive problem if one of your heirs dies before you.  Imagine naming Child A and Child B as beneficiaries of an account.  Child A dies before you.  Where does the money go?  Most likely you would want it to go to Child A’s children (or a trust for them).  However, if Child A dies before you, and you have named Child A and Child B as TOD beneficiaries of an account, you could accidentally send all the money to Child B instead.
    • It can create improper incentives for your family members. Imagine you wish to have $250,000 going to each of your two children, and you have two accounts, one going to Child A and the second going to Child B. Child A is your agent under a POA. If child A is helping to pay your bills, Child A may use the funds in the account designated for Child B before tapping into other resources.
  3. When is it a good option to name individuals as TOD beneficiaries of an account? Generally, this may be a good option when people get along and there are no concerns about money going to wrong person.  For example if you are older and have only one adult child, and that child is responsible.

Option 2: Naming a trust as a TOD beneficiary

  1. Pros:
    • It provides for a central pot of money to pay bills after you have passed away.
    • It helps avoid probate.
    • Option 2 is easier than Option 3. It’s easier to set up TOD beneficiary designations than to change ownership of accounts, especially banking accounts with a lot of activity.
    • It helps to guarantee your money goes where you want (regardless of the order of death of various beneficiaries).
      • *It provides better failsafes in case one of your children dies before you to ensure that that a deceased child’s share can go into a trust for grandchildren, and not be controlled by your son-in-law, daughter-in-law, or worse… someone that your child had divorced!
  2. Cons
    • It’s more costly to set up that Option 1
    • After you die, it may take longer for your heirs to get access to the money than Option 3 (where it’s owned by trust). 
      • *It may take longer because your heirs have to prove death.  It may take a while to get death certificate. (Note, getting a death certificate can be very difficult if you don’t have a spouse or children.)
      • *Occasionally depending upon the situation, tax waivers may be needed, dramatically slowing down the process.
    • It’s much easier to make mistakes with beneficiary designations than it is to have assets owned inside of a trust.  Often people change accounts and don’t update beneficiaries properly.  This type of mistake happens less if the account is owned inside of trust.
  3. I often recommend using TOD beneficiary designations for clients who are too busy to get around to moving assets into the trust. It is also useful for some assets that can’t legally be transferred to a living trust during your lifetime, such as restricted stock or retirement accounts.

Option 3: Changing ownership of account to Trust, removing beneficiary

  1. Pros:
    • Everything discussed in Option 2 plus
    • Greater privacy protection
    • Substantial benefits if you become incapacitated, because a trustee can often take over assets inside of a trust more easily than an agent under a POA.
    • Much more control to deal with special situations – for example, some clients may want a person to always co-sign on accounts after they reach a certain age. What happens if client goes missing?
    • If you wish to name a corporate Trustee upon your death or incapacity, this option is probably required. Corporate Trustees typically don’t want to serve as an agent under a power of attorney and they may not qualify as easily as an executor in some jurisdictions.
  2. Cons
    • More costly to set up that option 1 (because you need a trust)
    • It involves more work up front for clients to change ownership of accounts.
    • Usually about the same cost as option 2. (Note, sometimes there are extra fees for transferring real estate or additional fees assisting clients with funding a trust.)
  3. Generally, option 3 is by far and away the best practice. However, as discussed above, not everything can legally be transferred to a trust during your lifetime, so you still may need to designate a trust as TOD beneficiary of certain accounts.


In summary, when you are trying to decide whether you should name TOD beneficiaries on an account or transfer it a Trust, consider your overall goals, your family dynamic, and the need for a central repository for funds. Also, keep in mind that you can also have a hybrid approach, where you name TOD beneficiaries on some accounts, but also have others owned by you alone or by a revocable living trust.

Finally, keep in mind that this post does NOT address joint ownership of accounts or naming trusts as beneficiary of retirement accounts. These are entirely different topics with significant tax consequences.

If you have any questions regarding the use of Revocable Living Trusts vs. Wills or utilizing TOD beneficiary designations, please contact Kevin A. Pollock, Esq. or one of the other estate planning attorneys at The Pollock Firm LLC.

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