What Happens if There Is No Beneficiary on a Bank Account?

A bank account beneficiary is an individual or entity designated by the account holder to receive funds in an account upon the owner’s death. This designation ensures a direct transfer of assets, bypassing the often lengthy and complex legal process known as probate. Naming a beneficiary provides a clear path for asset distribution and offers peace of mind.

How Probate Applies to Bank Accounts

When a bank account lacks a designated beneficiary, funds become part of the deceased’s estate and enter the probate process. Probate is the legal procedure that authenticates a will and oversees the administration and distribution of assets. This court-supervised process can be time-consuming and involve various fees and expenses.

Upon notification of an account holder’s death, banks freeze accounts without beneficiaries. This prevents unauthorized transactions and secures funds until legal authority is established. The account remains frozen until an executor or administrator, appointed by a probate court, presents legal documentation to manage the estate.

To initiate the process, a petition must be filed with the appropriate probate court. The court appoints an executor (if there’s a will) or an administrator (if no will). This individual collects and inventories assets, including the frozen bank account. They must identify and settle debts and taxes before distributing assets to heirs.

Determining Heirs and Asset Distribution

After a bank account without a named beneficiary goes through probate, fund distribution is determined by state intestate succession laws. These laws establish a hierarchy of who inherits the deceased person’s assets. A surviving spouse is generally the primary heir.

If there is no surviving spouse, or after their share is allocated, children are next in line to inherit. This includes biological and legally adopted children, with the estate divided equally among them. If there are no surviving spouse or children, the inheritance passes to the deceased person’s parents.

In instances where none of these direct relatives survive, state laws extend inheritance to other family members, such as siblings, grandparents, aunts, uncles, or cousins. If no legal heirs can be identified through intestate succession, the assets may ultimately escheat to the state.

Designating Account Beneficiaries

Account holders can name beneficiaries on their bank accounts to bypass the probate process. Common methods include Payable-on-Death (POD) or Transfer-on-Death (TOD) designations, which allow funds to pass directly to the named individual(s) upon the owner’s death.

To establish or update a beneficiary, account holders contact their financial institution. This involves completing a specific form provided by the bank. Required information for the beneficiary includes their full legal name, date of birth, and Social Security number. Some institutions request the beneficiary’s address or relationship to the account holder.

Account holders can name multiple beneficiaries and specify the percentage each should receive. Contingent beneficiaries can also be designated to inherit funds if primary beneficiaries are unable to. Designating a beneficiary provides a clear and efficient path for asset transfer, allowing funds to be accessed more quickly by heirs without probate delays and costs.