What Happens to Your CD Account When You Die

Do you have a beneficiary for your financial accounts?

Your financial matters will cease to matter to you once you’ve passed away, but they will cause concern for those who stand to benefit from your holdings. To simplify estate issues, owners of certificates of deposit can file forms with their bank to designate a beneficiary to inherit the account after the account owner dies. A formal designation makes the account payable-on-death, sometimes called a POD account, to the named beneficiary.

Find out how to name a beneficiary for your CD account and what happens if you inherit a CD. If you’re a beneficiary of a CD account, you have a few options, including closing the account when a loved one dies.

What Are Beneficiaries and Why Are They Important?

Choosing a beneficiary can prove difficult, especially if you want to leave your CD to more than one person. Depending on the laws in your state, you might be able to designate more than one beneficiary, including a primary and secondary beneficiary. Some states allow account owners to designate an entity, organization or trust as a beneficiary. Check with your financial institution to find out what’s permissible in your state.

Designating a beneficiary ensures that your wishes will be fulfilled after your passing. CD ownership automatically passes to the designee when you die, guaranteeing that the CD won’t be part of your will and giving your heirs the benefit of avoiding probate.

See: Estate Planning Checklist — How to Create a Financially Sound Estate Plan

How Payable-on-Death CDs Work

Upon your death, the bank or the executor of your estate will contact your beneficiary about the POD bank account or CD. The beneficiary will bring ID and a certified copy of your death certificate to the bank to claim the CD.

Once the bank has verified ownership of the account, your beneficiary can influence what happens next. The beneficiary can choose to:

  • Allow the funds to reach the maturity date
  • Withdraw the funds
  • Transfer the CD to the beneficiary’s name

If the beneficiary has no immediate need for the money, allowing the funds to mature might be the best option. If money is a concern, your heir can withdraw the funds, probably without incurring an early withdrawal penalty. The last option is for the bank to transfer, or retitle, the CD, which would be a financially savvy move if CD rates are higher than they were when you originally opened the CD account.

If you’re concerned about your beneficiary having to pay death taxes — also called a estate taxes — on the CD, don’t be. Inherited cash, investments and property are not subject to a federal estate tax.

Learn More: CD Tax Guide — From Death Taxes to Interest Income Taxes

Now that you’re aware of how to include your CDs in your estate plan, you can ensure that your beneficiary will avoid probate issues or other complications. With no red tape to worry about, your heir will be free to enjoy your generous gift, and you can enjoy peace of mind that your assets will be distributed properly.