Are Your Savings Accounts Ready to Be Passed On?
Your savings account could end up in probate if you don’t plan ahead. Here's how beneficiary and payable-on-death designations can make transferring your money easier for your heirs.
What happens to the money in your savings accounts when you pass on? Making sure those funds go where you intend is an important part of estate planning, yet savings accounts can be easy to overlook.
Without the right designations, your savings could end up going through probate, potentially delaying when your heirs can access the money. That could leave your family paying out of pocket for expenses you intended those savings to cover, such as final expenses. A new survey conducted by Morning Consult on behalf of Kiplinger found that just 36% of parents have designated beneficiaries on retirement accounts or life insurance policies, highlighting how easy this relatively simple estate-planning step can be to overlook.
Here's how to avoid these common pitfalls, streamline the transfer and protect your financial legacy.
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What happens if you don't name a beneficiary
If you die without naming a beneficiary on an individually owned savings account, the money may become part of your estate and have to go through probate. Once the bank learns of your death, it may restrict access to the account until the person legally authorized to handle your estate can take control of the funds.
Who ultimately inherits the money will depend on your estate plan and state law. If you have a will, the funds generally become part of the estate distributed according to its terms. If you die without a will, known as dying intestate, state law determines which relatives inherit your assets.
Read more: Probate: The Terrible, Horrible, No Good, Very Bad Side of Estate Planning
If you already have a trust as part of your estate plan, naming the trust as the beneficiary may be one option. Danny Beckwith, a certified financial planner and financial adviser at First Financial Consulting, told Kiplinger, "Name the trust as your beneficiary. It will make it a lot easier to work with the banks."
Even if you've already named beneficiaries, it's important to review your designations periodically, particularly after major life changes such as a marriage, divorce, birth or death. Beckwith suggests reviewing beneficiaries every other year.
"You wouldn't believe how many mistakes happen, and by clarifying, you're providing peace of mind that your legacy will go on as you intended," he says.
But you don't necessarily need a trust to help your savings account avoid probate. Another option is to name a payable-on-death beneficiary.
How to designate someone as a payable-on-death beneficiary
Another option is to add a payable-on-death (POD) beneficiary to your savings account. After you die, the funds generally pass directly to the named beneficiary without going through probate. The beneficiary will need to contact the bank and provide the documentation it requires, typically including identification and a certified copy of the death certificate.
To add a POD beneficiary to your savings account:
- Contact your bank and ask how to add a payable-on-death beneficiary.
- Provide the beneficiary information the bank requires, which may include their full legal name, date of birth, address and Social Security number.
- If you're naming multiple beneficiaries, specify how you want the funds divided among them, often using percentages.
- Complete and submit the required paperwork. Depending on the bank, some documents may need to be notarized.
Keep in mind that avoiding probate doesn't necessarily eliminate potential tax considerations. Depending on where you live and the size of your estate, state estate or inheritance taxes could still apply.
What your family should know
The most helpful gift you can leave your heirs is clarity. Beckwith recommends, "I am a huge fan of parents letting their children know where everything is and what they will receive. Where we see the biggest problems is that the kids don't know what they're inheriting; it can be daunting to find where everything is."
Clear communication ensures your legacy reflects your values while also preventing sibling conflicts. Yet many families aren't having those conversations. The Trillion Dollar Talk survey found that two in five families have never discussed inheritance.
While you don't have to discuss exact dollar amounts, giving heirs a window into what they're receiving can help them plan now, so they don't have to contend with that when the time comes.
It also prevents them from having to hunt for accounts or legal documents they will need during an already stressful time. Knowing where to turn can give them peace of mind while honoring your legacy.
A pro tip: "Have your heirs save the phone number of your financial planner; that way they can call to receive all the information they need," Beckwith suggests.
Along with this, setting clear guidelines for your heirs can simplify the process.
A checklist for heirs
Create a document that serves as the roadmap for your beneficiaries. Make sure you keep this document in an accessible location known to your heirs and include these essentials:
- A list of all financial institutions where you hold accounts.
- Specific account numbers and the type of each account (e.g., savings, checking, brokerage).
- Updated contact information for your financial planners, advisors, or attorneys who can assist with the transfer.
Ultimately, you’ve worked hard to build your savings, and a little planning now can make things easier for your loved ones later.
Contact your bank to review your beneficiary designations and make sure they still reflect your wishes. It’s also a good time to create or update a roadmap showing your heirs where your accounts and other important financial information can be found.
Taking these steps now can help ensure your money goes where you intend and give your family one less thing to sort out during an already difficult time.
If you're an heir trying to make sense of an inheritance, or you want help preparing your own finances for the next generation, a financial adviser can help you understand your options and build a plan that fits your goals.
Use the tool below to connect with a vetted financial professional who can help:
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