Do I Need a Beneficiary on My Bank Account?

Probate and Bank Accounts

When an individual passes away, their assets typically enter a legal process known as probate. This court-supervised procedure validates the deceased’s will, if one exists, and oversees the distribution of their property to heirs or beneficiaries. Bank accounts without a designated beneficiary usually become part of this probate estate.

The probate process can be lengthy, often taking several months to over a year to complete, depending on the estate’s complexity and the court’s schedule. During this period, funds in the bank account may be inaccessible to the deceased’s heirs, creating financial inconvenience.

Probate proceedings are public records, making details about assets and their distribution accessible. The estate also incurs various costs, including court, attorney, and executor fees, which reduce the amount ultimately distributed to heirs.

Types of Account Beneficiary Designations

Several types of beneficiary designations allow bank accounts to transfer directly to a named individual upon the account holder’s death, bypassing probate. A common option is a Pay-on-Death (POD) account, where the account holder names beneficiaries to receive funds directly after their passing.

Another similar designation is a Transfer-on-Death (TOD) account, which functions almost identically to a POD account for bank accounts. Both POD and TOD designations ensure that the specified funds are transferred outside of probate, allowing the beneficiaries quicker access to the assets. The account holder retains full control over the funds during their lifetime and can change or revoke the designation at any time.

An In-Trust-For (ITF) account, sometimes called a Totten Trust, is another way to designate a beneficiary for a bank account. In this arrangement, the account holder opens the account in their own name “in trust for” a named beneficiary. Upon their death, the funds automatically pass to the designated beneficiary without probate.

Adding a Beneficiary to Your Account

Adding a beneficiary to a bank account typically involves providing specific information about the individual you wish to designate. Banks require the full legal name of the beneficiary, their current address, their date of birth, and their Social Security Number (SSN) or Taxpayer Identification Number (TIN). You will also need to specify their relationship to you, such as spouse, child, or sibling.

Financial institutions provide specific forms for adding these designations, often available at a branch or through their online banking portal. When completing these forms, it is important to accurately fill in all requested fields using the precise details gathered for each beneficiary. If you are designating multiple beneficiaries, you may also need to specify the percentage of the account balance each person should receive upon your passing.

Once the beneficiary designation form is completed, you can submit it through various channels. Many banks allow in-person submission at any of their branch locations, where a representative can verify your identity and ensure the form is correctly processed. Alternatively, some institutions accept forms submitted by mail, often requiring a signature guarantee or notarization for security purposes. A growing number of banks also provide the option to add or update beneficiary information securely through their online banking platforms.

After submitting the form, it is advisable to confirm with the bank that the designation has been successfully recorded. This confirmation might come in the form of a written notice, an updated account statement, or an accessible view within your online banking profile. Verifying the designation ensures that your wishes are accurately documented and that the funds will be distributed as intended.

Updating and Reviewing Beneficiary Designations

Life circumstances often change, making it important to periodically review and update your bank account beneficiary designations. You may need to remove an existing beneficiary or add a new one due to events such as marriage, divorce, or the birth of a child. Changing a beneficiary typically involves completing a new designation form provided by your bank, similar to the initial setup process.

Consider naming contingent beneficiaries, also known as secondary beneficiaries, in addition to your primary designees. Contingent beneficiaries are individuals who would receive the funds if all primary beneficiaries pass away before you. This ensures that your assets still transfer according to your wishes, even if unforeseen circumstances affect your primary choices.

Financial professionals generally recommend reviewing all beneficiary designations at least once a year. Major life events, such as a death in the family, a significant change in financial status, or changes in tax laws, also warrant an immediate review. This regular review helps ensure that your designations remain current and align with your present intentions for asset distribution.