Do You Need A Beneficiary For Your Bank Account?

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Do You Need A Beneficiary For Your Bank Account?

Having a beneficiary is an important step you should take if you have any money or valuable property sitting in a bank account. A term like this may bring thoughts of IRA accounts, life insurance policies, and variable annuities, but having beneficiaries for each of those is less common than it used to be. Those are the sorts of things your living trust will cover. 

Suppose you opened your checking or savings account; in that case, the chances are that it doesn’t have a designated beneficiary who can automatically receive the money in the event of your death. So it’s best to name a beneficiary now and avoid any confusion later as per bank account beneficiary rules.

What Does It Mean to Be a Beneficiary?

Beneficiaries are people designated by the account holder to receive the assets in the account, usually in the event of the account holder’s death.

Bank Account Beneficiary Rules: Generally, it is up to you to inquire about naming a beneficiary. Otherwise, you might not even be given a choice. This option is not available at all banks.

You’ll probably be prompted to fill out a form to name a beneficiary. You may be able to complete the process online if your bank’s beneficiary account rules allow it. In either case, it’s usually not difficult or time-consuming, and it doesn’t necessitate the use of a notary.

Are There Beneficiaries on Bank Accounts?

Banks rarely, if ever, demand or even request that checking account holders name a beneficiary. As a result, many checking and savings accounts may be without a designated beneficiary.

There are, however, compelling reasons to choose a bank account beneficiary, and the procedure is straightforward. A beneficiary designation might be a useful addition to your estate planning toolkit.

The main advantage of naming a bank account beneficiary is that the funds in the account will not be subject to probate after your death. Probate is a legal process that transfers the property of a person who has died to their beneficiaries. Unless a beneficiary is selected, any money in your checking or savings account will become part of your estate after you die. After that, it must go through Probate before any of your heirs can get their hands on it.

If you’re married, your account money has a slightly different fate. When you die, your spouse will receive half of the account balance. The rest will be handled via probate.

The process looks hugely different if you name a beneficiary. The beneficiary can get the money right away, which is significant. They can go to the bank with a certified copy of the death certificate, exhibit their identity, and fill out a few documents. As per bank account beneficiary rules, the money in the beneficiary account is transferred to their control right away.

Suppose you’re married and don’t live in a community property state. In that case, a surviving spouse may be able to contest the provisions of a beneficiary arrangement in the same way that they might contest the terms of a Will.

What Are POD Accounts and How Do They Work?

The account must be converted into an informal trust to name a beneficiary on a checking or savings account. A Trust is a legal structure intended to protect assets from probate after death, among other reasons.

Your converted bank account will now be known as a Payment on Death (POD) account at several banks. This account type is also known as an In Trust For (ITF), Totten Trust, or Transfer on Death account. Your named beneficiary will almost always be referred to as the POD beneficiary.

When it comes to naming POD beneficiaries, you have a lot of leeways. Any living person or entity, including nonprofit organizations and other trusts, can be named. However, you can’t come up with a name for something that isn’t alive. 

A nonliving legal entity cannot be named, such as a corporation, limited liability company, or partnership. If you name more than one beneficiary, your account’s assets will be distributed evenly. You may also be able to choose a dependent beneficiary who will get the monies if the named beneficiary dies before you or is unable or unable to accept the funds for any other reason.

You can update the beneficiary designations if you change your mind. Once a year or so, it’s good to evaluate beneficiaries for all of your financial accounts. Deaths, marriages, divorces, births, and other familial events may necessitate revising your beneficiaries. Keep in mind that beneficiary designations are optional.

Remember that beneficiary designations take precedence over Wills. You may have amended your Will to leave nothing to an ex-spouse when you die. However, if your bank account names that ex-partner as the beneficiary, they will be the one to get the funds.

If all POD recipients pass away before the account holder, the funds will be divided according to the terms of the will. If the account is empty or has a negative balance, none of the beneficiaries will get anything, and they will not be required to make up the difference.

Conclusion

You do not necessarily need a beneficiary for your bank account. But there are times when it is more beneficial to have one than not. However, suppose you choose not to have one, and something happens to you, in most cases. Your money will pass on to your spouse or partner, though some accounts will go directly to your estate if you don’t leave a beneficiary as per bank account beneficiary rules.