Funding a Trust With Brokerage Accounts: TOD vs Trust Re-Titling, Step-Up in Basis (2026)

Re-Titling to a Trust Account vs Adding TOD Beneficiary

For probate avoidance on a brokerage account, the grantor has two principal options: (a) re-title the account in the trust's name, so the trust owns the account during the grantor's life, or (b) keep the account in the grantor's individual name and add Transfer-on-Death (TOD) beneficiaries to direct the account to specified persons at death.

Both approaches avoid probate for the brokerage account. The key differences are:

• Control during incapacity: The trust account can be managed by the successor trustee if the grantor becomes incapacitated, without requiring a court-appointed conservator or guardian. The TOD account requires a power of attorney or court-appointed conservator if the grantor becomes incapacitated.
• Controlled distributions to beneficiaries: A trust can provide for staggered distributions to beneficiaries (e.g., 1/3 at age 25, 1/3 at age 30, 1/3 at age 35) or hold assets in continuing trust for beneficiaries' lifetime. TOD beneficiaries receive the account outright at the grantor's death, regardless of age or maturity.
• Asset protection for beneficiaries: A trust with a spendthrift clause provides creditor protection for beneficiaries after the grantor's death. TOD beneficiaries receive the assets outright, with no creditor protection.
• Consolidated administration: A trust holding multiple assets (real estate, brokerage, business interests) provides centralized administration through a single trustee. TOD designations are per-account; coordinating multiple TOD designations across multiple accounts is administratively cumbersome.
• Tax and basis: Both approaches receive the same federal step-up in basis at the grantor's death under IRC §1014.

For most grantors, a properly funded revocable trust is the better choice. TOD designations are useful as a backup for accounts forgotten or not transferred to the trust during life. Some grantors combine both: trust holds the principal accounts, with TOD designations directing any remaining accounts to the trust at death (effectively making the TOD point to the trust as the beneficiary).

The Brokerage Re-Titling Process

Re-titling a brokerage account to a trust typically takes 1-2 weeks at major brokerages. The standard process:

1. Obtain a trust certification or trust summary: A 1-2 page document signed by the grantor and notarized, identifying the trust, the date of the trust agreement, the trustee, and the trustee's authority over trust property. This is provided to the brokerage instead of the full trust instrument (which would otherwise be hundreds of pages and contain private family details).
2. Complete the brokerage's trust account application: Each major brokerage (Schwab, Fidelity, Vanguard, Merrill, E*TRADE) has a standard trust account application. The application asks for trust name, trustees, EIN (if any; revocable trusts typically use the grantor's SSN), and account terms.
3. Submit identification documents: Each trustee provides government ID. The grantor (if not also a trustee) typically provides ID as the account owner.
4. Transfer instructions: The grantor signs transfer instructions moving assets from the existing individual account to the new trust account. Securities transfer in kind (no sales, no taxable events). Cost basis transfers with the securities.
5. Confirmation and follow-up: After the transfer is complete (typically 1-2 weeks), the brokerage issues confirmation. The grantor should verify all securities transferred, cost basis is preserved, and dividend reinvestment / other instructions are maintained.

The Step-Up in Basis at Death

IRC §1014 provides that property acquired from a decedent receives a basis equal to fair market value as of the date of death (the "step-up in basis"). For appreciated assets, this eliminates the accrued unrealized capital gain, allowing the beneficiaries to sell at the new basis with no gain.

For a revocable trust, §1014(b)(2) provides that property transferred to the trust and included in the grantor's gross estate at death (because of the retained power of revocation) receives the step-up. The trust takes the stepped-up basis as if the grantor had owned the assets directly at death.

Example: a grantor has $500,000 of stock with $100,000 cost basis ($400,000 unrealized gain). The stock is held in the grantor's revocable trust. At the grantor's death, the trust takes a stepped-up basis to $500,000 (the fair market value at death). If the trust immediately sells the stock, there is no capital gain (sale price equals stepped-up basis). If the trust distributes the stock to beneficiaries, the beneficiaries also take the stepped-up basis.

For an irrevocable trust where the trust assets are not included in the grantor's gross estate (e.g., a properly structured ILIT, dynasty trust, GRAT remainder), no step-up occurs at the grantor's death. The trust continues with the carryover basis under IRC §1015 from the grantor's original contribution. When the trust later sells the assets, capital gain is recognized on the appreciation. This trade-off (estate exclusion at the cost of no step-up) is a key consideration in irrevocable trust planning for appreciated assets.

Joint vs Separate Trust for Married Couples

Married couples have a choice between (a) a single joint revocable trust holding all marital assets, or (b) two separate revocable trusts, one per spouse. The choice depends on community property vs separate property considerations, estate tax planning, and personal preferences.

For community property couples (in CA, TX, AZ, NV, etc.), a joint trust holding community property preserves the double step-up in basis at the first spouse's death under IRC §1014(b)(6). All community property assets in the trust receive a stepped-up basis when the first spouse dies, eliminating accrued capital gain on both halves. Splitting community property into two separate trusts can destroy this benefit if not done carefully.

For common-law (separate property) couples, separate trusts are sometimes preferred for federal estate tax planning (each spouse's trust uses that spouse's federal exemption, with credit-shelter trust planning at the first death). With the high federal exemption ($15M/$30M for 2026 under OBBBA) and federal portability, this is less critical than it was in lower-exemption years, but separate trusts remain useful for state estate tax planning (in NY, MA, OR, WA, and other states with separate-spouse exemptions).

Brokerage account titling for a joint trust: the account is in the trust's name with both spouses as trustees. Either spouse can transact on the account. For separate trusts, each spouse holds their own brokerage account in their respective trust.

Retirement Accounts Are Different

IRAs and qualified retirement accounts cannot be re-titled to a trust during the grantor's life. Federal law (the IRC's IRA and qualified plan provisions) requires the account to be held by an individual or an authorized retirement plan trustee. Transferring an IRA to a revocable trust is treated as a complete distribution (taxable income on the full IRA balance) and would defeat the IRA's tax-deferred status.

For estate planning, retirement accounts are managed via beneficiary designations, not trust funding. The grantor can name the trust as the beneficiary of the IRA (so the trust receives the IRA at the grantor's death), but the IRA itself remains in the grantor's name during life. The post-death distribution rules from a trust-beneficiary IRA are governed by the SECURE Act 10-year rule and the "see-through trust" regulations under Treas. Reg. §1.401(a)(9)-4. See our Trust and IRA page for the full framework.

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