Tracey never expected to be dealing with her brother Michael's affairs at just 42. After his sudden accident, amid the grief and shock, she discovered he'd taken one simple step that made an overwhelming time slightly more manageable—he had updated his bank account beneficiary designations just six months earlier.
While Michael's investment accounts sat frozen awaiting probate proceedings (he had meant to update those beneficiaries after his divorce but never got around to it), Tracey was able to access his checking account almost immediately with just a death certificate. This meant she could pay his outstanding bills, cover funeral expenses, and handle immediate financial matters without dipping into her own savings or waiting months for the estate to settle.
That one simple update he made saved Tracey countless hours of legal complications during an already difficult time, like a final gift – the gift of simplicity – when she needed it the most.
A short, easy update you can make today
Estate planning is one of those topics that we, as a society, tend to put off, particularly when we are younger and healthy. It’s almost like we are afraid that if we start thinking about the end of our lives, we will somehow invite it sooner. However, taking the steps to implement the appropriate paperwork and titling of the things you own can also be viewed as an act of loving kindness towards those who would be left with the burden of wrapping up your financial life should the unexpected happen.
While there are typically legal fees involved in creating and funding legal documents such as trusts and wills, hopefully you know by now that updating any beneficiary designations is free and quite easy, and often without a lot of the mental hand-wringing that can happen when we start thinking about who we want to get what and why.
How beneficiary designations work
A beneficiary designation tells the administrator of the asset titled who receives the designated account or proceeds upon your death and supersedes any trust or will. It’s a best practice to review your beneficiary designations about once a year, but especially upon any important life change, such as a birth, marriage, divorce, death or move from state to state. The huge benefit of using beneficiary designations is that it removes a lot of the red tape that could stand in the way of your heirs claiming what they inherited from you.
In other words, accounts with beneficiary designations pass outside probate, meaning no lawyers or courts have to be involved. As long as the person named can provide identification and a death certificate, the process is typically quick and easy for them to get accounts paid out to them or changed to their name. When no beneficiary is named, the account or asset pays to your estate, which then DOES involve the lawyers and courts and even becomes public record.
It's worth noting, however, that accounts that are passed via beneficiary designation may still have an estate or transfer tax obligation, which your estate executor will figure out, but even if this is the case, the person who inherits can still begin to use the inherited account or proceeds much sooner than if they had to wait for the probate court process to wrap up.
Which accounts use beneficiary designations
Examples of accounts that allow beneficiary designations include:
Retirement accounts
Life insurance
Trusts
Health Savings Accounts
Employee Stock Ownership Plans
529 College Savings Plans
Bank accounts
Many people don’t know that this account can have a beneficiary
That last one listed, bank accounts, often takes people by surprise, perhaps because we think of filling out a Payable on Death (or POD) form for these accounts, which may require you to go into the bank and ask for a physical form. Or, in many cases, people tend to keep their bank accounts in their own name, just assuming that the account will be transferred according to the terms of their will, which is what would happen if you DON’T complete a beneficiary designation.
However, nowadays, many banks have made it much easier to name a beneficiary on any checking or savings accounts, by allowing you to log in to your account online or through the app, then click through to add a beneficiary to any accounts you hold with the bank.
This can be especially helpful in cases where you have a bank account solely in your name that you may not wish to share the details of with a spouse or romantic partner or even your child, but you DO wish that someone could easily access this account should you pass away. That’s where filling out the beneficiary designation, a quick and simple process, can save your loved ones a lot of headaches.
Examples where this could help:
You share a home and a life with your partner, but you decide to forgo marriage. You keep your assets separate, but should something happen to either of you, you would want the other person to have quick and easy access to your checking account so they could pay bills, get a sense of what accounts they need to close for you and provide for their needs.
You have a living trust in place, but don’t wish to hassle with changing the title of your checking and savings account. You still want these accounts to pass outside of probate, so you designate your trust as the beneficiary of the account(s) upon your death.
You want the bulk of your estate to be distributed to family according to the terms of your trust or will but want to supplement certain heirs or provide for someone outside of that plan with a smaller, specific amount. You can simply add them as a beneficiary to a savings account that only goes to them.
There are myriad ways that this little tidbit can help, but above all, making sure your bank accounts go to where you intend them straightaway, without having to worry about more complicated legal documents is quick and easy with most banking institutions these days. Log in to your account and set your beneficiary designations up today!
Disclaimer: This post is for information purposes only and is not to be taken as legal or investment advice.