If you have a retirement account or a life insurance policy, you’re probably familiar with the process of naming a beneficiary, but did you know that bank accounts can have beneficiaries as well?
The point of designating beneficiaries is to specify who will inherit your assets when you die. When you open a new bank account, you may have the option to add one or more beneficiaries. You can also typically name beneficiaries later, even years after you open the account. You can generally name a beneficiary for a checking account, savings account, certificate of deposit (CD), or money market account.
Naming beneficiaries to bank accounts is something you might consider as part of a broader estate plan. Read on to learn about the benefits of adding a beneficiary to a bank account and how to do it.
Key Points
• Naming a beneficiary on your bank accounts lets the institution know who should get the funds in the event of your passing.
• Designated beneficiaries can access funds immediately after the account owner’s death by verifying their identity and providing a death certificate.
• Beneficiary designations are specific to financial products and generally override the intentions stated in a will.
• Naming beneficiaries for bank accounts involves selecting accounts, choosing beneficiaries, and updating preferences with the bank.
• Marriage can affect payable on death accounts, especially in community property states, impacting asset distribution.
What Is a Beneficiary?
A beneficiary is someone who’s entitled to inherit assets from someone else. The types of assets that can allow you to name someone as beneficiary include:
• Life insurance policies
• 401(k) plans and similar workplace retirement plans
• Individual Retirement Accounts (IRAs)
• Trusts
Primary beneficiaries have first claim to assets. Contingent beneficiaries can be named to inherit assets should the primary beneficiary die or not be able to be located.
Beneficiaries can be a person, organization, or entity. For example, you might choose to add a non-profit organization as a beneficiary of a bank account. In that case, you would need to provide details about the organization rather than a person’s information.
Beneficiaries vs Writing a Will
A will is a legal document that allows you to specify how you’d like all the assets included in your estate to be distributed among your heirs after you pass away. You can also use a will to leave funeral or burial instructions or name a legal guardian for your minor children.
A beneficiary designation, on the other hand, assigns a person or party to receive benefits from a specific account or financial product, such as a checking account, savings account, retirement account, or life insurance policy. Beneficiary designations are unique to each asset and are managed by the institution or company that holds that asset.
Beneficiary designations generally supersede the intentions stated in a will. So, if you’ve named your spouse as beneficiary to your 401(k), for example, you wouldn’t be able to leave that asset to someone else in your will.
Should You Add a Beneficiary to Your Bank Account?
Bank accounts, including savings and checking accounts, typically allow you to name a beneficiary, and doing so is generally a good idea.
Naming a beneficiary for a bank account allows that person to inherit those assets once you pass away without having to go through probate. Probate is a legal process in which a deceased person’s estate is divided up among their heirs. Assets can be divided according to the terms of a will. If there isn’t a will, then state inheritance laws can determine what happens to the deceased’s estate.
Probate can be time-consuming and costly. Adding a beneficiary to a bank account allows them to sidestep all of that. Your beneficiary can collect the money in the account without a lengthy wait. They may need to verify their identity and provide a death certificate, but it’s a much simpler process than probate.
You might choose to add a beneficiary if you want to make sure that they’re able to access those assets right away. Your beneficiary designations for a bank account won’t affect your designations for life insurance policies, retirement accounts, or other assets.
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Steps for Adding a Beneficiary to Your Bank Account
Banks typically don’t require or perhaps even request that you add a beneficiary to an account. It’s a good idea to check with your bank first to find out if you can add a beneficiary to a checking account or savings account. If so, the bank should be able to tell you what you’ll need to do next to do so.
Typically, the process works something like this.
1. Decide Which Accounts Will Have a Beneficiary
The first thing to consider is which accounts to name beneficiaries for. You might have a checking account, savings account, and money market account at the same bank, for instance. Since the accounts are separate, you’d have to decide which ones will have beneficiaries and whether the beneficiary for each one will be the same person.
You’ll need to tell the bank which bank account number or numbers you’re referencing when adding a beneficiary. It’s a good idea to double-check the number to make sure you’re giving the right account information.
2. Choose Your Beneficiaries
Next, you’ll need to decide who will be the beneficiary for your bank accounts. If you’re married, that might be your spouse. If you’re unmarried or widowed, you might choose to name one of your children, another relative, or a close friend.
Keep in mind that you may not be able to name minor children as beneficiaries. If you’d like to ensure that your bank account goes to a minor child, you may need to choose a trusted adult as the beneficiary and ask them to act on behalf of your child and to use the money for their benefit. Alternatively, you could set up a trust or custodial account for your child.
3. Update Your Beneficiary Preferences
The actual process for naming a beneficiary to a checking or savings account will vary by bank. At some banks, it may be as simple as logging in to online banking, navigating to your account settings, and entering your beneficiary’s information. That may include their name, address, date of birth, and Social Security number.
Other banks may require you to submit a beneficiary designation form, either online or in person at a branch. Again, you’d need to provide the beneficiary’s identifying information to add them to your account.
Note that adding a beneficiary designation does not grant that person access to your account during your lifetime. They would only be able to access the money in the account upon your death.
What Is a POD Account?
A payable on death or POD account is a bank account that has a named beneficiary. That beneficiary is entitled to automatically receive the assets from the account when the original account owner passes away. They do not have access to the account during the primary account owner’s lifetime.
Adding a beneficiary to a bank account effectively turns that account into a POD account. Creating a POD account allows your beneficiaries to bypass probate. You can name one or more beneficiaries for a payable on death account. In terms of how to create a POD account, you’d need to tell your bank that you either want to open a new account for that purpose or convert an existing account.
A POD beneficiary designation will override instructions left in a will. When there are multiple beneficiaries to a payable on death account, assets in the account are split between them equally.
How Marriage Impacts POD Accounts
Marriage can add a wrinkle to your will or estate planning efforts if you’re creating a POD account. If you live in a community property state, your spouse would be entitled to half of the assets in the account, excluding ones you owned before the marriage or ones that you inherited. If the account was jointly owned by you and your spouse, a named beneficiary cannot access the funds until your spouse dies.
Keep in mind that if you named your spouse as beneficiary to a bank account and you end up getting divorced, they would still be entitled to receive assets from the account. You’d need to contact your bank to update your POD beneficiary designations to make sure those assets go where you want them to once you pass away.
Alternatives to Adding a Beneficiary to Your Bank Account
Adding one or more beneficiaries isn’t the only option for making sure your loved ones have access to your bank accounts after your passing. You might also consider setting up a joint account with someone else or specifying how you want your bank accounts to be divided in your will. Setting up a joint bank account might be easier, though there are some pros and cons.
Opening a Joint Bank Account
Opening a joint bank account is something you might consider if you’d like the person you’d otherwise choose as a beneficiary to have access to the account while you’re alive. For example:
• You might choose to set up a joint account with a spouse if you have a high level of financial trust between you.
• If you’re unmarried, then you might choose to open a joint bank account with your adult child, a parent, or a sibling.
• You might be asked to open a joint bank account with someone else if you’re assuming responsibility for managing their finances. For instance, an aging parent might want to set up a joint account so you can help them with managing bills.
Can you open a bank account for someone else? Yes, but only in limited situations. Generally, you can open a bank account for someone else if:
• They’re a minor child.
• They’ve granted you power of attorney.
Before opening a joint account, consider the relationship you have with the other person and how much control you’re comfortable allowing them to have. For instance, what if you’d like them to inherit the assets in your bank account but not be able to make withdrawals right now? You may be better off naming them as a beneficiary instead of opening up a joint account with that person.
Recommended: Joint Bank Accounts vs. Separate Bank Accounts in Marriage
The Takeaway
Do checking accounts have beneficiaries? Some of them do or can upon request. Whether you should add a beneficiary to your account will depend on your financial and personal situation.
If you want to ensure that a loved one can easily and quickly claim your checking, savings, or any other type of bank account after you die, it’s a good idea to add them as a beneficiary to the account. This ensures they will be able to claim the funds quickly and with minimal paperwork. If you want that person to be able to access your account while you’re alive, however, setting up a joint account might better suit your needs.
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FAQ
What if there is no beneficiary on a bank account?
If there is no beneficiary on a bank account and the account holder dies, the assets in the account will be combined with other assets from the estate during probate. All assets, including bank accounts, would then be distributed according to the terms of a will or, if there is no will, state inheritance laws.
How many beneficiaries can you have on one bank account?
Banks can decide whether to limit the number of beneficiaries you can have on a bank account. When naming multiple beneficiaries, keep in mind that they’ll each be entitled to an equal share of those assets. If you’d rather divide the account up differently, you may want to leave it to your heirs in your will instead.
How does a beneficiary receive their money?
A bank account beneficiary will typically need to verify their identity and the death of the account owner before receiving any money from the account. The bank may cut them an official check for the account balance or transfer the money to their bank account electronically.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Photo credit: iStock/Alessandro Biascioli
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