Your bank accounts will go through probate if you have not named a beneficiary, which can be a long and arduous process for your heirs. It may take months before your assets are settled.
If your beneficiaries are already assigned to your accounts, the assets will pass to them by contract. If a beneficiary is not named, your heirs may have to go through probate, a legal process for settling an estate after someone dies. That makes beneficiary designations — up-to-date ones — extremely important.
You are not allowed to name a non-living legal entity, like a corporation, limited liability company (LLC) or partnership. Beneficiary designations override wills, so if you forget to change them, the person named will still receive the money, even if that was not your intent.
Estranged relatives or former spouses – Family relationships can be complicated, so think carefully if an estranged relative or ex-spouse really aligns with your wishes. Pets – Pets can't legally own property, so naming them directly as beneficiaries is problematic.
Not all bank accounts are suitable for a Living Trust. If you need regular access to an account, you may want to keep it in your name rather than the name of your Trust. Or, you may have a low-value account that won't benefit from being put in a Trust.
If you are indeed designated as a beneficiary on the account, the bank will release the contents of the account to you. If you are unsure where the decedent banked, you may consider asking the decedent's family members, the executor/administrator of their estate or the trustee of their trust.
Joint owners or beneficiaries of the deceased person's account can work with the bank directly to access the funds. If the account becomes part of the owner's estate, the legally designated executor can collect the funds and place them into an estate account.
A Well Thought Out Estate Plan
If you choose the route of forgoing a trust and listing beneficiaries directly with the financial institutions, please don't forget that you will also need a will and these powers of attorney, even if you choose not to do a trust.
By naming a beneficiary/nominee, you ensure that your assets, specifically your bank account funds, go to the person that you want. This clarity minimises the risk of disputes and confusion between relatives and legal heirs regarding the allocation of your assets.
Bottom Line
Whether you call it a payable-on-death account or a Totten trust, this type of account can serve a useful purpose when creating an estate plan. The main benefit is its ability to bypass the probate process and for the funds to go directly to your beneficiary.
There is no federal tax for beneficiaries of POD accounts. There will be an inheritance tax, or death tax, depending on the state, that will need to be settled before any money can leave the account. If the deceased has any debt that has not been settled, the money in the account must go to paying that off first.
If you need to send money across to another account, you need to add the account as a beneficiary. Keep the beneficiary's account details handy. These include the bank account number, the IFSC code, the branch details, the beneficiary's name as mentioned in the bank account, and phone number.
To ensure that families dealing with the death of a family member have adequate time to review and restructure their accounts if necessary, the FDIC will insure the deceased owner's accounts as if he or she were still alive for six months after his or her death.
If beneficiaries are not named, the life insurance proceeds can go to your estate. If you don't have a will, your estate, including the death benefit, may need to go through probate court.
If you contact the bank before consulting an attorney, you risk account freezes, which could severely delay auto-payments and direct deposits and most importantly mortgage payments. You should call Social Security right away to tell them about the death of your loved one.
No Beneficiary on Bank Account
If there is no beneficiary listed on the bank account, the account typically goes through probate, and the funds will be distributed according to the deceased's will or state laws if there is no will.
Banks freeze access to deceased accounts, such as savings or checking accounts, pending direction from an authorized court. Banks generally cannot close a deceased account until after the person's estate has gone through probate or has otherwise settled.
Avoid Probate: When you name a beneficiary on a bank account, the funds in the account can bypass probate and go directly to the beneficiary. This speeds up the process significantly, giving your heirs access to the funds more quickly.
Because a power of attorney may grant very broad power over your property, including your bank accounts, we recommend that you consult a legal advisor, estate planner or other tax professional to see what's right for your situation.
A trust can give you more control over how your assets are distributed. You can name a trust as a direct beneficiary of an account. Upon your death, your assets transfer to the trust and distributions are made from the trust to its beneficiaries according to your wishes.
There are a variety of assets that you cannot or should not place in a living trust. These include: Retirement accounts. Accounts such as a 401(k), IRA, 403(b) and certain qualified annuities should not be transferred into your living trust.
After your death, when the trust becomes irrevocable, an accident involving a trust-owned vehicle can place the other trust assets at risk.