Bank Account Beneficiary: What It Means and How It Works

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Naming a bank account beneficiary ensures your money goes straight to your loved ones without getting tied up in costly, time-consuming probate. Most banks let you do this through a “Payable on Death” (POD) or “Transfer on Death” (TOD) designation. Here’s how it works and why it matters.

How Bank Account Beneficiaries Work

A bank account beneficiary works like this: 

• No access while you’re alive: The beneficiary has no access to your accounts while you’re alive. 
• Automatic transfer: The funds automatically transfer to the designated beneficiary upon your passing.
• The probate process is not required: By naming a beneficiary, the funds are transferred quickly and efficiently to the person you designate. 
• Supersedes your will: A beneficiary designation on an account bypasses any instructions that are left in a will. 

Beneficiary vs. Joint Account Holder: What’s the Real Difference?

How To Add a Bank Account Beneficiary: Step-by-Step Guide

It’s relatively easy to add a beneficiary to an account. You can follow these steps: 

1. Gather personal information: Make sure you have the beneficiary’s full name, date of birth, address and Social Security number. You must also know your account number and provide identification. 
2. Contact your bank: You can contact them via customer service, through the online portal or in person. 
3. Complete the paperwork: You have to fill out and sign the paperwork. The beneficiary is not required to be present.  
4. Confirm the change: Make sure the change is made by checking online or contacting customer service. 

Bank Account Beneficiary Rules You Should Know

There are some common rules you should be familiar with if you add a beneficiary to your account. 

• Not all banks allow multiple beneficiaries: If you want the money spread equally between multiple people, like your children, consider setting up a trust.
• Your beneficiary has to be over 18 years old: You may have to use a custodial account to make a minor your beneficiary.
• Your beneficiary could override what is in your will: Make sure you keep your beneficiary updated when you change your estate plans.
• Accounts with no beneficiary could go into probate: This can tie your money up for several months and require your loved ones to pay legal fees.
• You can’t put any restrictions on how your beneficiary spends the money they inherit: If you’d like your money to be used in a specific way, consider a trust.
• You can set up a secondary beneficiary: This is in case your primary beneficiary dies before you do.
• Your beneficiary doesn’t have to be a person: You can also designate a charitable organization.

Good To Know

Bank policies can differ widely. Before adding a beneficiary or making any account changes, call your bank or visit its website to confirm the specific steps, requirements and any fees that might apply.

How To Remove or Change a Beneficiary on Your Bank Account

Want to remove a beneficiary from your account? Here are the four steps you need to take: 

1. Contact Your Bank

• You can visit the bank in person: This is the easiest way to change your beneficiary. 
• You can call customer service: Many banks will take this information online and will send you the required paperwork so you can sign. 
• You can make the change online: Some banks will allow you to change this information online.

2. Provide the Required Information

• Provide personal information: You will need to provide your account number and identification. 
• Provide the beneficiary’s information: Submit the full name and Social Security number of your beneficiary. 
• Add the new beneficiary (if applicable): Provide the full name and other relevant details. 

3. Complete the Paperwork

• Written request: Most banks require a written request to remove a beneficiary.
• Signatures required: Sign the form authorizing the change. 

4. Confirm the Change

• You should follow up with the bank and confirm the change. 

Beneficiary vs. Joint Account Holder: Which Is Easier To Remove?

Removing a beneficiary is simple — no written consent needed. But removing a joint account holder is different. You’ll need their signature and formal consent before making any changes.

Pros and Cons of Naming a Beneficiary

Thinking about adding a beneficiary? Here are the main pros and cons to consider before making the decision.

Pros

• Simple to set up: It’s not complicated to name a beneficiary. 
• Free service: It’s free to add a beneficiary to your bank account. There are no legal fees or expenses associated with the designation. 
• Avoids probate: Account funds will be transferred directly to the beneficiary. This designation saves the hassle of moving through probate. 
• Privacy maintained: The transfer of funds to the beneficiary is handled privately and is not disclosed in a public record. 
• Control is yours: While you’re alive, you still retain full control over the account. 

Cons

• Can conflict with your will: Your bank account designation trumps what is written in your will. 
• Risk of mismanagement: If your beneficiary receives a lump sum and they are not responsible, there is a possibility that the funds will be mishandled. 
• Only takes effect upon your death: If you’re incapacitated, you still own the account. The beneficiary designation applies only after you pass. 
• May jeopardize government benefits: If your beneficiary receives government benefits, the inherited amount could put those benefits at risk. 
• May not have enough to pay your debts: With your beneficiary inheriting the funds in your account, your estate may have trouble paying off its debts. Your executor may have to sell other assets. 

Why You Should Name an Account Beneficiary

If you don’t want your bank accounts to go into probate after you die and have the court decide who gets what, you can name a beneficiary. 

It takes a few steps to name beneficiaries to bank accounts, but doing so can enable you to rest assured that after you die, your hard-earned assets will be distributed exactly how you intend them to be.

Barri Segal contributed to the reporting for this article.

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