The beneficiary of a bank account stands to inherit the funds held in the account when the account owner dies. You can name one or more beneficiaries to your bank accounts. Under federal laws, accounts with named beneficiaries are classified as revocable trust accounts, meaning the accounts are under your name but funds are in trust for someone else. As with any revocable trust, you can change your beneficiaries at any time.
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Normally, when someone dies, their estate, including their bank accounts, goes through probate. During the probate process, a judge reviews the decedent's will and any claims on the estate and then decides how to divide up the decedent's assets. The probate process costs money and can take months to resolve, but if you have pay-on-death beneficiaries listed on your bank accounts then those accounts do not go through probate. The named beneficiary can close the account and access the funds simply by giving the bank a copy of the decedent's death certificate and a copy of their own government issued identification card or passport.
You can name anyone as a pay-on-death beneficiary on your non-retirement bank accounts, but rules for your Individual Retirement Arrangements are slightly different. Some states have community- or marital-property laws, which mean that your property passes to your spouse upon your death. Since your IRA, by definition, belongs to you alone, it must pass to your spouse when you die. However, you can ask your spouse to sign a spousal-consent form that enables you to name someone other than your spouse as your IRA beneficiary.
The Federal Deposit Insurance Corporation insures your bank accounts up to £162,500 per bank and your bank-held IRAs are also separately insured for an additional £162,500. You can increase the deposit insurance by £162,500 by adding a beneficiary to your account although the beneficiaries on IRAs are not entitled to insurance coverage. If you have a joint account, you and the other account owner can both name the same person as your beneficiary. In that case, that same person brings £325,000 of extra insurance protection to your account, half for being your beneficiary and half for being the other owner's beneficiary.
A pay-on-death (POD) beneficiary gains full control of your account when you die but has no rights and no access to the account during your lifetime. If you want a friend or relative to assist with your banking while you are still alive then you can obtain a durable power of attorney (POA) that gives that person the ability to transact on the account on your behalf. The POA's powers to transact on the account end upon your death and at that time the POD beneficiary takes control of the funds in the account.
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