Do Checking Accounts Have Beneficiaries?

It’s not required, but it may be advantageous

Naming a beneficiary is common practice when you open most investment accounts. But what about checking accounts? The beneficiary for an account, of course, is the person you want to benefit from the account after you die. Beneficiaries can be named for individual retirement accounts (IRAs), mutual funds, annuities, and life insurance policies.

Most people use their checking accounts to deposit their paychecks and other benefits, along with doing their everyday financial transactions, such as paying bills, rent, mortgage, and other obligations. It is not as common to name a beneficiary for a checking account, but it may help to have one to smooth the complicated process of having your assets passed down after your death. Here is how you can add a beneficiary to a checking account.

Key Takeaways

  • Checking accounts don’t require account holders to name a beneficiary.
  • Many banks offer payable-on-death (POD) accounts as part of their standard offerings.
  • A POD account instructs the bank to pass on a client’s assets to the beneficiary, which means money in a POD account is kept out of probate court in the event the account holder dies.
  • After a beneficiary is chosen, the bank provides the appropriate form, called a "Totten trust", to be filled out, which will allow funds to pass directly to the beneficiary after your death.

Do Bank Accounts Need Beneficiaries?

Unlike some other accounts, checking accounts are not required to have named beneficiaries. Even though they’re not needed, you may want to consider designating beneficiaries for your bank accounts in order to protect your assets.

Due to increasing interest, many banks offer their customers payable-on-death (POD) accounts as part of their standard offerings. An existing checking account can be converted into a POD account, which instructs the bank to pass on all the client’s assets to the named beneficiary.

POD Accounts for Beneficiaries

You may wish to convert your checking account to a POD account if you want someone specific to receive the money in it. To accomplish the conversion of a checking account to a POD account, you choose a beneficiary and notify the bank of your wishes. The bank, in turn, gives you, as the owner of the account, a beneficiary designation form called a "Totten trust" to fill out. The completed form gives the bank authorization to convert the account to a POD, allowing the account’s funds to pass directly to the beneficiary after your death.

Under normal circumstances, when you die the money in your bank accounts becomes part of your estate. However, POD accounts bypass the estate and probate process. To claim the money, the beneficiary simply has to show up at the bank, prove their identity, and produce a certified copy of the account holder’s death certificate.

The money in a POD account is kept out of probate court in the event the account holder dies.

What Happens If You’re Married?

In community property states, married POD account holders should be aware that their spouses automatically get half the money in the account upon their spouse’s death. The only exceptions are for assets acquired before the marriage or inherited funds. If you want to leave the money in the account to a beneficiary other than your spouse, be sure to get your spouse’s consent in writing. Otherwise, your wishes might not be fulfilled.

If your state does not recognize community property in a marriage, your spouse has the right to dispute the distribution of the funds in court.

Other Options

As an alternative to a POD account, you might consider naming a joint account holder on your checking account. This may be a spouse or child. Simply go into your bank branch and ask that another name be put onto the account. Make sure that person is with you, because they will have to sign all the paperwork.

An advantage of having a joint bank account is that it removes the need to name a beneficiary, assuming the person whose name is on the account with yours is your desired beneficiary. That person will have access to and complete control over the balance. Of course, a disadvantage is that you have to share the account with that person, who may be financially irresponsible or the subject of a lawsuit.

Even though you may name a beneficiary or joint account holder, remember that you should also have a will, which articulates the distribution of all of your assets and possessions. Having a will takes complete care of your affairs, whether or not your accounts have beneficiaries.

Article Sources
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  1. Cornell Law School. "Totten Trust."