Beneficiary and Pay-on-Death Bank Account Rules

When preparing an estate plan, often one of the primary goals is to avoid the process known as probate. Having an account payable on death instead of passing through probate will allow your wishes to be implemented almost immediately upon your death. There are a variety of estate planning tools available for avoiding probate. One of the simplest is a bank account beneficiary designation.

Beneficiary Bank Account/Bank Account Beneficiary Rules

With certain types of bank accounts, you can designate a “beneficiary” who will be entitled to take ownership of the account after your death. Since your beneficiary’s rights arise automatically, and the process of transferring account ownership is handled by your bank, bank accounts with beneficiary designations are not subject to the probate process. These types of accounts are commonly known as pay-on-death (or “POD”) accounts, and they offer a simple and inexpensive way to transfer financial assets as part of your estate plan.

But, before you designate a beneficiary for your bank account, there are some important rules and practical considerations to keep in mind. For example:

• Choice of Beneficiary—You can designate just about anyone to take ownership of your bank account upon your death. While this means you have a lot of flexibility, it also means that you need to make some important decisions. Do you want to leave the account to a spouse or child? If a child, do you need to establish any parameters for accessing the funds (such that a trust might be a more appropriate tool to use)? Do you want to use your beneficiary designation to make a donation to charity?
• Beneficiary or Beneficiaries—With a pay-on-death account, you have the option to name a single beneficiary or to name multiple beneficiaries who will each receive a specified percentage of the account. You may also want to name a “back-up” beneficiary in case your first selection predeceases you.
• Immediate Access—With adequate identification and proof of death, your beneficiary (or beneficiaries) will be entitled to take ownership of your account immediately upon your death. This is one reason some people choose to use a trust instead when leaving assets to minor children. On the other hand, if you have loved ones who could benefit from having immediate access to funds without waiting through the estate administration process, a bank account beneficiary designation could be a good option.
• Tax Rules—Using bank account beneficiary designations can potentially have tax consequences for the accounts’ beneficiaries as well as the other beneficiaries under your estate plan. Tax planning is an important component of the estate planning process, and you will want to make sure that you minimize your loved ones’ overall tax burden as much as possible.
• Estate Plan Harmony—While bank account beneficiary designations are relatively simple, they can also lead to some estate planning challenges. For example, if you have two children who each have grandchildren (or who may have grandchildren in the future) and you want their respective families to divide your estate equally, naming them as 50-50 beneficiaries of your accounts may not be the best option. If one of your children predeceases you, his or her grandchildren will not “step in” as beneficiaries; instead, your surviving child may be entitled to sole ownership of the account. This type of outcome can be avoided with other estate planning tools.

Contact Us to Discuss Your Estate Plan

If you would like more information about bank account beneficiary rules or have questions about your estate plan, contact our offices to schedule a confidential consultation. To speak with a Georgia estate planning lawyer at Stearns-Montgomery & Proctor, please call (678) 971-3413 or inquire online today.