Understanding Bank Account Beneficiaries (2024)

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• Beneficiaries of traditional bank accounts inherit the funds upon the owner's death.
• You can designate a beneficiary at any time by providing their personal information.
• Reviewing and updating your beneficiaries is a critical aspect of estate planning.

Preparing for unexpected circ*mstances includes having a plan for disruptions that can impact your family's financial stability. If you want to ensure someone can easily and quickly claim your bank account after you die, you should name a beneficiary to your bank account—and consider naming a backup.

Definition of a bank account beneficiary

A bank account beneficiary is an individual who inherits your bank account after you die.

Most financial institutions allow you to designate at least one beneficiary on deposit accounts, like savings accounts, checking accounts, and CDs. You can also designate a beneficiary, or multiple, on investment accounts, like IRAs.

Importance of naming a beneficiary

Adding a bank account beneficiary is critical for anyone, but may be especially necessary if you're single or unmarried, Sophia Bera, CFP® professional and founder of Gen Y Planning. In those cases, your most prized and/or largest assets will not automatically pass to a spouse when you die.

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. Naming a beneficiary ensures a clear and swift transfer of your money.

How bank account beneficiaries work

While a bank owner is alive, the beneficiary won't be able to view, deposit, or withdraw from the accounts. Bank account beneficiaries will not have access to the bank accounts until all bank account owners have died.

Your beneficiary will need to present a death certificate to your financial institution to access your bank account, Bera says.

If you have a negative account balance when you die, the bank account beneficiary isn't required to pay the amount you owe. The person simply won't receive any money.

Types of beneficiaries: Primary vs. contingent

A primary beneficiary is the person who the account will transfer to upon your death. If that person is not living at the time of the account owner's death, the account will go to the contingent beneficiary.

You can name more than one primary beneficiary and specify what percentage of the account they will inherit.

How to name a bank account beneficiary

If you'd like to add one or more beneficiaries to your account, you'll likely need the same documentation you would need to open a bank account. The following information may be required:

• Person's full name, address, and birthdate
• Social Security number or tax identification number
• Country of citizenship

Most financial institutions will require you to contact your local branch or call customer service to add a beneficiary. However, some may also let you make changes to your account through online banking.

Bank account beneficiaries may be added at any time. You don't need to assign a bank account beneficiary when you open a new bank account. You may also choose to remove or change a beneficiary at any point if you need to.

Benefits of naming a beneficiary

Naming a beneficiary is a vital estate and legacy planning tool. Here are some of the advantages it provides to the account owner and their family.

Avoidance of probate

One of the biggest benefits of naming beneficiaries on your bank and investment accounts is the ability to avoid probate. Your heirs will enjoy a seamless transfer of your assets rather than potentially drawn-out, public court proceedings.

Direct transfer of assets

Adding a beneficiary may be helpful if your family will need to pay for funeral expenses, says Bera.

"If you don't have something like that set up, your account could go to probate, and your family members may have to wait months to access that money. If they're trying to wrap up your affairs that can be really costly," she adds.

Clarity and peace of mind

If your family members are trying to figure out your affairs after your death, they'll also need to know where you can keep your money and how to access it.

"I think it brings a really important conversation of knowing where you even have those bank accounts," says Bera. "They can just be like, 'Here's where she keeps her bank accounts. Here's where she keeps her checking and savings. She has a 401(k) through work.' They'll know where everything is."

Changing a beneficiary

Beneficiaries are not set in stone. In fact, it's something you should review annually to make sure your past choices reflect your current wishes.

You can change a beneficiary or update their information, such as their legal name if they got married, by calling your bank or credit union.

FAQs