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The Heritage Law Center, LLC Blog

Should You Have a Beneficiary on Your Bank Account?

POSTED ON: July 5, 2022

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You’ve named beneficiaries to accounts many times already, when you opened an IRA, bought an insurance annuity, a life insurance policy, started an investment account, signed up for a pension, or bought shares in a mutual fund. These are the accounts that come to mind when people think about beneficiary designations. However, according to a recent article in Forbes titled Do You Need a Beneficiary for Your Bank Account?,” they aren’t the only financial instruments with beneficiary designations.

Most retail banks don’t ask you to name a beneficiary on a bank account when you open it, but it’s not because you can’t. If the bank allows beneficiaries on their accounts, it’s usually a pretty simple process. In most cases, you’ll be asked to fill out a form or go through the bank’s process online.

Banks don’t push for you to name a beneficiary on a bank account because they aren’t required to do so. However, this is a smart move and can be a helpful part of your estate plan. The biggest benefit: funds in the account will be distributed directly to the beneficiary upon your death. They won’t have to go through probate and won’t be part of your estate. Otherwise, whatever assets you keep in your bank accounts will be counted as part of your estate and subject to probate (unless you’ve put the account in a trust). A Massachusetts estate planning attorney can help you create an estate plan to meet your goals and account for the beneficiaries you’ve designated on your accounts.

Probate is a court process to validate the will and the named executor, supervising the distribution of assets from your estate. In some cases, it can be complicated, take months to complete and depending on the size of your estate, be expensive. If the money in your bank accounts doesn’t go to a beneficiary, it may be used to pay off estate debts instead of going straight to a beneficiary.

Naming a beneficiary on your bank account is a better alternative. The beneficiary may collect the money immediately. They’ll need to go to the bank with an original or certified copy of a death certificate and required identification (usually a driver’s license). Then the money will be transferred to them.

Another means of transferring assets from your bank account upon your death is to change your accounts to POD, or Payable On Death accounts. There are other names: In Trust For (ITF), Totten Trust, or Transfer on Death (TOD). The named beneficiary is referred to as the POD beneficiary.

There’s considerable flexibility when naming a POD beneficiary. It may be a living person, or it can be an organization, including a nonprofit charity or other trusts. You aren’t allowed to name a non-living legal entity, like a corporation, limited liability company (LLC), or partnership.

Beneficiary designations override wills. Let’s say you chose your brother Bill as your beneficiary designation on your bank account. Years later, you decided you wanted to leave everything to your son Sam who has become an adult, so you created a will that outlines that goal. But you never got around to updating your bank account’s beneficiary designation. When you pass away, Bill will still get the money from your bank account. You should review beneficiaries for all of your accounts every year or so. Divorce, death, marriages, births, and any other lifetime events are also reasons to check on beneficiary designations.

As a skilled and experienced Massachusetts estate planning attorney, I’ll work with you to create an estate plan that meets your specific needs and keeps in mind the beneficiary designations you have on your various account. Contact us today to schedule a free, no-obligation consultation.