Adding a beneficiary to a bank account is similar to naming a beneficiary to a life insurance policy or retirement account. A bank account beneficiary is entitled to receive the assets in the account when you pass away.
Should you name a beneficiary to your bank accounts? Maybe, if you’d like to ensure that the money goes to a specific person, group of persons, or entity after you die.
There are, however, some bank account beneficiary rules to keep in mind when deciding how to handle your accounts. Here, you’ll learn more about:
• What a bank account beneficiary is
• What privileges a beneficiary has
• The pros and cons of naming a beneficiary to a bank account.
What Is a Beneficiary on a Bank Account?
A bank account beneficiary is an individual or entity who’s entitled to inherit assets once the account owner passes away. Generally, the beneficiary to a bank account can be anyone you choose to name, including:
• A spouse
• Adult children
• Siblings or other relatives
• Trusts
• Charitable organizations.
It may be possible to name a minor as the beneficiary to a bank account if your financial institution allows it. However, you might be better off appointing someone to act as a custodian for them and naming that person as the beneficiary, since leaving assets to children can get tricky from a legal perspective.
You could also set up an account in their name if you want to establish an account for a minor. The minimum age to open a bank account alone is typically 18 or 19, depending on which state you live in. However, parents can open youth savings accounts or teen checking accounts on behalf of minor children.
All beneficiaries to the account have an equal share. So, if you have five adult children and you name each of them as beneficiaries to your bank account, it would be a five-way split when it’s time to divide the assets. Each person would receive 20%.
Bank Account Beneficiary Rules
If you’re interested in naming one or more beneficiaries to your bank accounts, it’s helpful to understand a little more about how it works. Your bank can offer more information on adding beneficiaries or removing them, if necessary. In the meantime, here are a few key things to know.
Is a Beneficiary Required?
You’re not required to name a beneficiary to a bank account. However, if you’re opening a new bank account, the bank might ask you if you’d like to name one or more beneficiaries.
Is there an advantage to naming a bank account beneficiary? There are a couple, actually.
• Naming a beneficiary ensures that the person you choose will inherit the assets in your account after you’re gone.
• Bank accounts that have a beneficiary are not subject to probate. Probate is a legal process in which a deceased person’s assets are inventoried, outstanding debts are paid, and remaining assets are distributed to their heirs. It can be costly and time-consuming, but accounts with named beneficiaries are exempt from the process.
Can Beneficiaries Interact With Your Account?
You might be wondering what control, if any, a beneficiary might have over your account. For example, when can a beneficiary withdraw money from a bank account?
The simple answer is that a beneficiary can’t do anything with the account until you pass away. Unless you add them as a joint owner, they wouldn’t be able to make withdrawals or get information about the account.
Once you pass away, however, the money becomes theirs. At that point, they could do whatever they like with it since they technically own it. Keep in mind that naming a beneficiary wouldn’t prevent a government withdrawal from your account if your balance is offset for unpaid debts.
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Does Marriage Affect Beneficiary Rules?
Whether marriage impacts bank account beneficiary rules can depend on how the account is owned and what state law dictates.
If you and your spouse are both listed as joint account owners, for instance, then the beneficiary you name would likely need to wait until both of you pass away to collect any money. An account that’s owned solely by you could be passed on to your beneficiary without any of the money going to your spouse.
However, your spouse may be able to contest the beneficiary designation with the probate court. You may also need your spouse’s consent to leave assets in a bank account to someone other than them after your death.
If you get divorced and your spouse was the beneficiary to your bank account, you’d likely want to update that designation. Otherwise, they’d still be entitled to any money from the account after you’re gone.
Are There Any Downsides to Having a Beneficiary?
Naming a beneficiary to a bank account has its upsides, but there are some potential drawbacks to keep in mind as well.
• The beneficiary can do what they want with the money once they inherit it. If you’d like to have a say in how they manage those funds after you’re gone, you might be better off leaving the money in a trust instead. With a trust, you can specify exactly how and when your heirs can access their inheritance.
• Beneficiary designations can also get tricky if you change your mind later. You may need to close the account and open a new one to remove a beneficiary, depending on your bank’s policy.
• Naming beneficiaries can also be problematic if it causes infighting among your heirs. For example, you might name your daughter the beneficiary to your checking account but not your son. That could lead to squabbles between them and even legal disputes if your son challenges the beneficiary designation after your death.
Do All Banks Allow Beneficiaries?
Do bank accounts have beneficiaries automatically? Usually, the answer is no. But most banks allow you to name a beneficiary to bank accounts. Credit unions can allow them too. You can check with your bank to see if naming one or more beneficiaries is an option.
If your bank does allow beneficiaries, it’s a good idea to familiarize yourself with the rules. For example, the bank might restrict who you can name and the number of beneficiaries allowed. Or it might have certain guidelines for changing or removing beneficiaries later.
Can you open a bank account for someone else if your bank doesn’t allow beneficiaries? You might be able to, depending on the bank’s rules. For example, you could set up a joint account for yourself and someone else or open an account for a minor child. Either one could allow you to bypass beneficiary designation rules.
Payable-on-Death Accounts vs. Bank Account Beneficiaries
When you open a new bank account you may be able to designate it as a payable on death (POD) account. Payable on death means that when you pass away, the money in the account is payable to the beneficiary or beneficiaries that you named at the account opening.
It’s possible to add a beneficiary to a bank account after the fact. That may be as simple as filling out a form or logging onto online banking and adding the beneficiary’s information to an existing account. The money in the account would still be payable on death to the beneficiary once you pass away.
Whether your bank specifically refers to your account as payable on death or not, the beneficiary rules are the same. Anyone who’s named to inherit the assets in the account would not be able to touch them until after you’ve died.
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The Takeaway
Adding a beneficiary to a bank account could make transferring money to loved ones easier, especially if you’d like them to be able to sidestep probate or just feel financially secure during a trying time. If you’re not sure whether you can add a beneficiary to a bank account or not, you can ask your bank for more details.
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FAQ
Can a beneficiary take over a bank account?
A beneficiary is entitled to inherit a bank account when the original account owner passes away. Someone who is listed as a beneficiary, but not a joint owner, would not be able to take over the account or access it during the owner’s lifetime.
What happens when you add a beneficiary to your bank account?
When you add a beneficiary to your bank account, you’re telling the bank that you’d like the money in the account to go to that person (or persons) when you pass away. The beneficiary would be able to inherit the account from you after your death.
Who gets the money in your bank account after your death?
If you name one or more beneficiaries to a bank account, then those beneficiaries would be entitled to get the money in your account when you pass away. On the other hand, if you don’t name a beneficiary, then your bank account can get included in your estate. It would then be distributed to your heirs, according to the terms of your will or state inheritance law if you die intestate (without a will).
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.
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