Bank Account Beneficiary Rules (2024)

Naming a beneficiary may be familiar to you. It’s a step that’s often required when you’re opening an IRA, purchasing an annuity, acquiring a life insurance policy, opening a brokerage account or even buying shares of a mutual fund. But those accounts aren’t the only ones that can have a beneficiary: Checking accounts and savings accounts can have beneficiaries, too.

What Is a Beneficiary?

Beneficiaries, in general, are people or entities that the holder of an account designates to receive the assets in the account, typically, in the event of the account holder’s death.

Bank Account Beneficiary Rules

Unlike with other accounts, banks don’t require you to name a beneficiary when you open a checking or savings account. Generally speaking, it’s up to you to ask about naming a beneficiary. Otherwise, you may not even be presented with the option. And, not all banks allow this option.

To name a beneficiary, you’ll likely be asked to fill out a form. Some bank beneficiary account rules let you do the process online. In either event, it’s generally not complicated or difficult and doesn’t require you to find a notary.

Do Bank Accounts Have Beneficiaries?

Banks don’t generally require or usually even request holders of checking accounts to name a beneficiary. As a result, many checking accounts and savings accounts may not have a beneficiary.

However, there are good reasons to consider naming a bank account beneficiary, and the process is fairly simple. Naming a beneficiary can be a valuable addition to your estate planning toolkit.

The big benefit of naming a bank account beneficiary is that it allows the funds in the account to bypass the probate process after you die. Unless a beneficiary is named, any money in your checking or savings account will become part of your estate after you’re deceased. Then it has to go through probate before any of your heirs can access it.

Probate is a legal process by which the assets of an estate are distributed under a court’s supervision. It can be complicated and lengthy. If anybody contests the terms of your will, or if you have a complicated estate, probate can take months or years to complete. And, if it becomes part of your estate, the money in your bank account can be used to pay off debts owed by the estate rather than going to a beneficiary you would prefer.

If you’re married, the fate of your account funds is slightly different. Half of the account balance will go to your spouse upon your death. The rest will go through probate.

If you name a beneficiary, the process looks very different. A major difference is that the beneficiary can collect the money immediately. Armed with a certified copy of the death certificate, they can show up at the bank, present their identification and fill out a few forms. Then the money in the beneficiary account is immediately transferred to their control.

If you are married and you don’t live in a community property state, however, a surviving spouse still may be able to dispute the terms of a beneficiary arrangement, just as they can dispute the terms of a will.

What Are POD Accounts?

To name a beneficiary to a checking or savings account, you have to convert the account into what amounts to an informal trust. A trust is a legal construction that is used to, among other things, shelter assets from probate after death.

At many banks, your converted bank account will now be referred to as a Payment on Death (POD) account. Other names for this account type include In Trust For (ITF), Totten Trust or Transfer on Death account. In most cases, your named beneficiary will be referred to as the POD beneficiary.

You have considerable flexibility when naming POD beneficiaries. You can name any living person or organization, including nonprofit charities and other trusts. You can’t, however, name a nonliving legal entity such as a corporation, limited liability company or partnership.

If you name more than one beneficiary, the assets in your account will be divided equally among all the beneficiaries. You may also be able to name a contingent beneficiary who will receive the funds if the named beneficiary dies before you or is otherwise unable or unwilling to accept the funds.

Should you change your mind at some later date, you can change the beneficiary designations. It’s a good idea to review beneficiaries, for all of your financial accounts, once a year or so. Deaths, marriages, divorces, births and other familial events can require updating your beneficiaries to reflect changing circ*mstances.

Bear in mind that beneficiary designations override wills. You may have changed your will so that an ex-spouse won’t get anything when you die. But if your bank account designates that former partner as the beneficiary, that is who will receive the money.

If all the POD beneficiaries die before the original account holder, then the funds in the account will be distributed according to the terms of the will. If there is no money or a negative balance in the account, none of the beneficiaries will get anything, nor will they be asked to make up any negative balance.

You can name beneficiaries to other sorts of accounts as well, including savings accounts, certificates of deposit (CDs), retirement accounts such as IRAs and brokerage accounts. Regardless of the account type, or whom or when you name beneficiaries, the money in the POD account remains yours and under your control as long as you live.

What Are the Alternatives?

Naming a POD beneficiary to your bank account is a simple, effective and flexible way to keep your assets out of probate after death. However, not all banks offer POD accounts. And naming a POD beneficiary is not the only way to do this. Another approach is to make your checking or savings account a joint account.

If you name someone as a joint account holder, then the money will be instantly available to them after your death, without any need for formalities at all. However, the money in the account also is available to them at any time before your death. So, unless you can count on your joint account holder to be responsible, a POD beneficiary may be a better way to go. With a POD beneficiary account, you alone control the money while you are alive.

A will is another way to see that your assets are distributed according to your wishes after death. However, assets in a will must go through probate, which takes time and can cause the estate to shrink due to the need to pay fees and perhaps settle debts of the estate. And beneficiary designations take precedence over stipulations in a will. For example, if your will says the money in your checking account goes to your favorite charity, and the beneficiary designation awards it to an ex-spouse, the wishes expressed in the will are going to be disregarded by the court.

Bottom Line

To name a beneficiary on a bank account, you have to convert the account into an informal trust, then name a person, group or organization as Payment on Death beneficiary. Many people may not consider going through this process, but naming a beneficiary is an effective way to make funds available to the recipients immediately rather than going through the time-consuming probate process.

The beneficiary process is relatively simple and can be altered as circ*mstances require. Naming a bank account beneficiary can help ensure that assets you accumulate in life are distributed as you want after you have passed on.