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I'm doing my estate planning, and looking for ways to avoid probate costs for my heirs. Most of my assets are individual stocks held at one brokerage.

Of course a revocable living trust is one probate avoidance tool. But I've just become aware of another tool which is easier, less expensive (free, in fact), and seems to fit my situation perfectly--the transfer on death (TOD), sometimes referred to as the pay on death (POD) beneficiary designation.

Many banks and investment companies, including my broker, allow account holders to sign a TOD form designating beneficiaries to receive the assets immediately upon the death of the account holder--completely avoiding probate.

Question 1 - Would using the TOD method affect the stepped up cost basis of my stocks? In other words, would my heirs' cost basis still be stepped up to the fair market value on my date of death, as it would if they inherited the stocks through my will?

Question 2 - Are there any other pitfalls to the TOD designation? (It seems almost too good to be true--like a free lunch.)

BTW, I am aware that avoiding probate doesn't have any effect on estate taxes. That's a whole other can of worms.

Thanks for your opinions.

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