Do you need a beneficiary for your bank account? – Forbes Advisor

Designating a beneficiary may be familiar to you. This is a step often required when you open an IRA, purchase an annuity, purchase a life insurance policy, open a brokerage account, or even purchase shares of a mutual fund. But these accounts are not the only ones that can have a beneficiary: checking accounts and savings accounts can also have beneficiaries.

What is a beneficiary?

Beneficiaries, in general, are persons or entities that an account holder designates to receive the assets of the account, generally, in the event of the death of the account holder.

Bank Account Beneficiary Rules

Unlike other accounts, banks do not require you to name a beneficiary when you open a checking or savings account. In general, it is up to you to find out about designating a beneficiary. Otherwise, you may not even be presented with the option. And not all banks allow this option.

To name a beneficiary, you will likely be asked to fill out a form. Some beneficiary bank account rules allow you to complete the process online. Either way, it’s usually not complicated or difficult and doesn’t require you to find a notary.

Do bank accounts have beneficiaries?

Banks generally do not require or even require checking account holders to name a beneficiary. Therefore, many checking accounts and savings accounts may not have a beneficiary.

However, there are good reasons to consider naming a bank account beneficiary, and the process is quite simple. Designating a beneficiary can be a valuable addition to your estate planning toolkit.

The great benefit of naming a bank account beneficiary is that it allows funds in the account to bypass the probate process after your death. Unless a beneficiary is named, any money in your checking or savings account will become part of your estate after your death. Then it has to go through probate before any of your heirs can access it.

Probate is a legal process by which the assets of an estate are distributed under the supervision of a court. It can be complicated and time-consuming. If someone disputes the terms of your will, or you have a complicated estate, probate can take months or years. And, if it’s part of your estate, the money in your bank account can be used to pay off debts owed by the estate rather than going to a beneficiary you prefer.

If you are married, the fate of funds in your account is slightly different. Half of the account balance will go to your spouse upon your death. The rest will go through certification.

If you name a beneficiary, the process is very different. A major difference is that the beneficiary can receive the money immediately. Armed with a certified copy of the death certificate, they can go to the bank, show their ID and fill out some forms. Then the money in the beneficiary’s account is immediately transferred under his control.

If you are married and do not live in a community property state, however, a surviving spouse may still be able to dispute the terms of a beneficiary agreement, just as they may dispute the terms of a will.

What are POD accounts?

To name a beneficiary to a checking or savings account, you must convert the account into what amounts to an informal trust. A trust is a legal arrangement that serves, among other things, to protect assets from probate after death.

At many banks, your converted bank account will now be referred to as a pay-on-death (POD) account. Other names for this type of account include In Trust For (ITF), Totten Trust or Transfer on Death account. In most cases, your designated beneficiary will be referred to as the POD beneficiary.

You have considerable flexibility when designating POD beneficiaries. You can name any living person or organization, including non-profit charities and other trusts. However, you cannot name a nonliving legal entity such as a corporation, limited liability company, or partnership.

If you designate more than one beneficiary, the assets in your account will be divided equally among all beneficiaries. You may also be able to name a contingent beneficiary who will receive the funds if the named beneficiary predeceases you or is otherwise unable or unwilling to accept the funds.

If you change your mind later, you can change the beneficiary designations. It’s a good idea to review the beneficiaries, for all of your financial accounts, about once a year. Deaths, marriages, divorces, births and other family events may require updating your beneficiaries to reflect changing circumstances.

Keep in mind that beneficiary designations take precedence over wills. You may have changed your will so that an ex-spouse does not receive anything when you die. But if your bank account names this former partner as the beneficiary, he will receive the money.

If all of the POD beneficiaries predecease the original account holder, the funds in the account will be distributed according to the terms of the will. If there is no money or a negative balance in the account, none of the recipients will receive anything, nor will they be asked to make up a negative balance.

You can also name beneficiaries for other types of accounts, including savings accounts, certificates of deposit (CDs), retirement accounts such as IRAs, and brokerage accounts. Regardless of the type of account, or who or when you name beneficiaries, the money in the POD account remains yours and under your control for as long as you live.

What are the alternatives ?

Naming a POD beneficiary on your bank account is a simple, efficient and flexible way to keep your assets out of probate after your death. However, not all banks offer POD accounts. And naming a POD beneficiary isn’t the only way to do it. Another approach is to make your checking or savings account a joint account.

If you name someone as co-holder of the account, the money will be immediately available to them after your death, without any formality. However, the money in the account is also available to them at any time before your death. So unless you can rely on your co-account holder being responsible, a POD payee may be a better fit. With a POD beneficiary account, you are in sole control of the money during your lifetime.

A will is another way to ensure that your assets are distributed according to your wishes after your death. However, the assets in a will must be probated, which is time-consuming and can result in a reduction in the estate due to the need to pay fees and possibly settle the debts of the succession. And beneficiary designations take precedence over testamentary stipulations. For example, if your will indicates that the money in your checking account is given to your favorite charity and the beneficiary designation assigns it to an ex-spouse, the wishes expressed in the will will not be taken into account. by the court.

Conclusion

To name a beneficiary on a bank account, you must convert the account to an informal trust and then name a person, group or organization as the beneficiary of the payment upon death. Many people may not consider going through this process, but naming a beneficiary is an effective way to make funds available to beneficiaries immediately rather than going through the time-consuming probate process.

The beneficiary process is relatively simple and can be modified depending on the circumstances. Designating a bank account beneficiary can help ensure that the assets you accumulate during your lifetime are distributed as you wish after your death.