Selecting Bank Account Beneficiaries

Creating your estate plan may seem like an overwhelming job. You probably think it has a lot of complicated legal issues and paperwork. This explains why you've been putting off speaking with an estate planning attorney. You tell yourself you will get around to it when you have more time.

The good news is there's a quick and easy way to get started. You can select a bank account beneficiary by following a few simple rules. Beneficiary designations are one of the easiest ways to transfer assets to loved ones and family members.

This cost-free service will transform your accounts into a type of informal trust. An account with a named beneficiary is a payable-on-death (POD) account.

Your financial institution can give you a form for each account. The person you choose to inherit your account is a beneficiary. After your death, the account beneficiary can immediately claim ownership.

Before setting up your account, reviewing bank account beneficiary rules is a good idea. This article also discusses other types of accounts that can transfer assets through beneficiary designations.

Why Select a Bank Account Beneficiary?

A POD account is a popular method for avoiding probate. It's quick and cost-effective. It's a good method to transfer property after death.

After you die, your representative distributes probate assets under the court's supervision. The legal process of probate can take months or even years to complete. During this time, your loved ones have no access to the property you intended for them.

When you name an account beneficiary, that account does not become part of your estate at your death. The account proceeds transfer to the beneficiary. The proceeds become their personal property.

Who Can Be an Account Beneficiary?

The account holder is in charge of naming an account beneficiary. This is true whether you make the transfer-on-death designation through a TOD or POD beneficiary designation.

The named beneficiary can be anyone you choose. It can be anyone from your high school best friend to your kids. You can even name several beneficiaries to a single account. In that case, you would select the percentage each person receives.

Some financial institutions may require your beneficiary's Social Security number. You'll probably need to discuss your choice with your intended beneficiary.

Also, remember a joint account. When you have a joint bank account, the joint account holder also owns the assets. So there is no need for probate when you die. The joint account holder already owns the assets.

Naming a Charity As a Beneficiary

Charitable groups and nonprofit organizations can serve as bank account beneficiaries. Be sure the Internal Revenue Service recognizes the group you select. Corporations, partnerships, and limited liability companies cannot be your designated beneficiary.

Keep Beneficiary Designations Updated

You must maintain updated beneficiary designations. If circumstances in your life change, update your account beneficiary.

If you fail to do so, it could come with unintended consequences. You could, for example, unintentionally leave money to your former spouse. If your beneficiary dies before you, the account assets become part of your estate. Your representative will distribute the account funds under the terms of your will.

What Rights Does an Account Beneficiary Have?

While you're alive, your accounts are your personal property. You can spend your money, close your account or change beneficiaries.

Your account will operate just as it did before designating a beneficiary. A beneficiary has no rights to your property until after you die. The only difference you may notice is your account being called an “in trust for" or ITF account.

When Can a Beneficiary Claim Account Assets?

After your death, the beneficiary has a right to collect any money remaining in your account. They need to go to the bank with proper identification. They must also bring a certified copy of the death certificate. The bank will have a copy of the form you filled out naming them the beneficiary.

The bank will provide the new account owner with a few more forms. The money gets transferred. It's easy as that—no waiting for probate. The laws of your state may require a brief waiting period, and creditors may have the right to settle final debts.

What Other Types of Assets Can Have a Beneficiary Designation?

Besides bank accounts, several types of accounts use beneficiary designations. Many people hold significant assets in accounts subject to beneficiary designations.

Other accounts may include:

  • Retirement accounts
  • IRAs
  • Investment accounts and other brokerage accounts, such as mutual fund accounts
  • Life insurance policies
  • Annuities

Designating beneficiaries can be a critical part of a plan to avoid the probate process in probate court. The directives that apply to bank accounts also apply to other accounts.

Using Joint Ownership to Transfer Property Outside Probate

Besides beneficiary designations, titling assets with joint tenancy can efficiently transfer property. Though the steps may be more complicated than beneficiary designations, it's worth considering.

For example, you could title property as joint owners with the right of survivorship for real estate. With this type of ownership, the co-owner becomes the property owner at the first owner's death. In some states, tenants by the entirety have the same effect between spouses.

At the first spouse's death, the surviving spouse owns the property. Probate is unnecessary for transferring the decedent's share of the property. The decedent is no longer the owner at death.

If You Still Have Questions, Receive a Free Case Review

You've worked hard all your life and want to know that your property distribution is set up and that your property will be properly distributed when the time comes. Working with an experienced attorney can ensure your estate plan meets your long-term goals.

An estate planning attorney can review your estate plan. They can ensure you have all the necessary documents. Depending on your situation, they may include:

  • A last will and testament
  • Power of attorney documents
  • Living will and advanced healthcare directives
  • A revocable living trust

Take the first step in planning for your future and receive a free case review from an experienced estate planning attorney.

Was this helpful?

Can I Solve This on My Own or Do I Need an Attorney?

  • Complex probate situations usually require a lawyer
  • A lawyer will take these matters seriously and enforce protections
  • Get tailored advice and ask your legal questions
  • Many attorneys offer free consultations

If you need an attorney, browse our directory now.