Beneficiaries can be useful in a number of ways. It can save work for your family and lawyers down the line when you pass or become unable to take care of yourself. People put beneficiaries on all kinds of accounts and other items that would need to be passed down properly to avoid a battle in court.
IRA, 401k, and other items typically have beneficiaries, but a bank account isn’t something that many people have a beneficiary with. Should you add a beneficiary to a bank account? It depends.
Passing Via Will/Estate
Even if you just keep a bank account to pay bills, any money in the account is part of your belongings and when you die it passes down to your beneficiaries. Bank accounts are considered a part of your estate so when you die it passes on to the named beneficiaries in the will. That shouldn’t be an issue if your plan isn’t to divide your account from your estate.
Passing With Beneficiary Listed
At banks, you can go through the process of naming a beneficiary to your account. This means that when you die, the funds pass on to the beneficiary whose name is listed on the account’s beneficiary form. Updating beneficiary forms are important once major life events occur. Marriage, childbirth, and divorce usually change beneficiaries rather quickly.
Do You Need A Beneficiary?
If you don’t believe you need a beneficiary then don’t fill out the form. If you believe that the account should be part of your estate then you don’t have to spend time filling out papers. If you have someone that isn’t going to be in your will but you wanted to leave a few bucks, add a beneficiary.
How To Add A Beneficiary To A Bank Account
When naming beneficiaries on bank accounts people own a Pay-on-Death account. On these accounts, the account owner doesn’t relinquish control of the bank account. This is a good option because the beneficiary can’t affect cash flow in the account and they aren’t eligible to see financial statements without your permission. Once the owner has died, the named beneficiary gets immediate access to the bank account.
Who To Name As Beneficiary
There are certain people that you shouldn’t name as a beneficiary on a bank account. Minors shouldn’t be named because many banks won’t release the funds to a minor. A court could possibly force a guardianship to be generated. Naming a special needs individual could be a bad move depending on the amount in the account. If it were too much the special needs individual would no longer be eligible for government business. Make sure the person you pass it on to is very responsible.
Change The Account
To make your account a Pay-on-Death Account you have to go to the bank in person to make the change or open a new account. You need your Driver’s License, bank account information, and the information about the beneficiary. Fortunately for the beneficiary doesn’t have to be present to sign anything. Make the bank aware that you want the account to be a POD account. You can “convert” an existing account or open a new one. It’s a fairly easy process.
Change The Beneficiary
There are some cases where you need to change your beneficiary. Changing beneficiaries is quite easy. Just appear in person again and they will give you the proper forms to fill out. If you named a trust, you can’t change it. If the beneficiary you named dies and you didn’t change it when you die the account becomes a part of your estate. It is recommended to review beneficiaries on all accounts every couple of years.
What Does The Law Say?
Firstly, the federal banking rules permit beneficiaries to be designated for accounts. The federal government made it possible to generate a POD account so funds can be sent to the beneficiary immediately upon the death of the account holder. Remember the law doesn’t permit the beneficiary access just because they are named beneficiaries.
Who Can Be A Beneficiary?
Any individual can be named as a beneficiary. Remember not to name minors or special needs individuals if you can help it. A trust can be named, but cannot be changed so be careful when naming a trust. You can also name charitable groups and non-profits. The issue with those is the IRS recognizing these groups as charitable or nonprofit. You can also name multiple beneficiaries and secondary beneficiaries on the same account and dole out by percentage.
FDIC Insurance Extension
The FDIC insures bank deposits up to $250,000. If you name beneficiaries to your account or accounts you have found a loophole that can increase the deposit insurance that is promised at each financial institution that you use. This can be beneficial for large accounts where you want added protection from the federal government. This is a good move even if you’re invincible like everyone under the age of 30.
Bank Account Beneficiaries Benefit Quickly
Federal banking laws permit the money in the account, with a proper beneficiary form filled out, to be passed right to it’s designated beneficiaries. These beneficiaries are allowed to get all of the money upon the death of the account owner. Without the money passing to the estate, this forgoes court and judicial action that could be required on a Power of Attorney or a will. In order to receive the funds, all the listed beneficiary has to do is go to the bank, show a picture ID and a death certificate.
Beneficiaries Are Crucial
Beneficiaries are critical to avoid trouble in this litigious society. Families see money and belongings and they lose their minds. It’s not a certainty that your family or loved ones will fight over everything you leave behind, but it’s good to be prepared just in case.
Take a look at all of your accounts and make sure you consider adding beneficiaries to those accounts. If you want them to just a part of your estate, you can save yourself some work, but the work passes down to your family.