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

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You may be familiar with the designation of a beneficiary. This is a step that is often required when you open an IRA, buy an annuity, take out a life insurance policy, open a brokerage account, or even buy shares in 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 people or entities that the account holder designates to receive the assets of the account, usually in the event of the death of the account holder.

Rules relating to bank account beneficiaries

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 the designation of 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 complete a form. Some payee bank account rules allow you to do the process online. In either case, it is usually not complicated or difficult and does not require finding a notary.

Do bank accounts have beneficiaries?

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

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

The great thing about 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 be 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 if you have a complicated estate, probate can take months or years. And, if it becomes 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 the 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 homologation.

If you are naming a beneficiary, the process is very different. One major difference is that the recipient can receive the money immediately. With a certified copy of the death certificate, they can go to the bank, show their identity document and fill out a few forms. Then the money in the beneficiary’s account is immediately transferred under their control.

If you are married and do not live in a communal property state, however, a surviving spouse can still challenge the terms of a beneficiary agreement, just as they can challenge the terms of a will.

What are POD Accounts?

To name a beneficiary of a checking or savings account, you must convert the account to what is equivalent to an informal trust. A trust is a legal construct that is used, among other things, to protect property from probate after death.

In many banks, your converted bank account will now be referred to as a payment 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 a POD beneficiary.

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

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

If you change your mind at a later date, you can change the beneficiary designations. It is a good idea to review the beneficiaries, for all of your financial accounts, once a year or so. Deaths, marriages, divorces, births, and other family events may require an update from your beneficiaries to reflect changing circumstances.

Remember that beneficiary designations take precedence over wills. You may have changed your will so that a former spouse gets nothing when you die. But if your bank account designates this former partner as the beneficiary, he will receive the money.

If all POD beneficiaries die before 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 beneficiaries will receive anything, and they will not be asked to make up a negative balance.

You can also name the beneficiaries of other types of accounts, including savings accounts, certificates of deposit (CDs), retirement accounts such as IRAs, and brokerage accounts. No matter what type of account, who or when you name the beneficiaries, the money in the POD account remains yours and in 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 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 appoint someone as joint account holder, the money will be immediately available to them after your death, without any formalities. However, the money in the account is also available anytime before your death. So, unless you can rely on your joint account holder to be responsible, a POD beneficiary may be a better solution. With a POD beneficiary account, only you control the money while you are alive.

A will is another way of seeing that your assets are distributed according to your wishes after death. However, the assets of a will must be probated, which is time consuming and can lead to a reduction in the estate due to the need to pay fees and possibly settle the debts of the family. succession. And the designations of beneficiaries take precedence over the stipulations of a will. For example, if your will states that the money in your checking account goes 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 tribunal.

Final result

To name a beneficiary on a bank account, you need to convert the account to an informal trust and then name a person, group or organization as the beneficiary of the death payment. 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 tedious approval process.

The beneficiary process is relatively straightforward and can be changed depending on the circumstances. Naming a bank account beneficiary can help ensure that the assets you accumulate over your lifetime are distributed the way you want after your death.


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