Beneficiary Designations for Financial Accounts

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What is beneficiary designation?

A “beneficiary designation” is the simplest way to name who should receive your financial account when you pass away. As the name implies, it allows a person to designate beneficiaries for their financial accounts (retirement account, life insurance policy, checking/savings account, etc.). For example, in a beneficiary designation, you can instruct your bank to pay account funds over to a specific person or persons when you die. Sometimes designating a beneficiary on a bank account is also referred to as making the account a “pay on death” account.

Probate avoidance

Beneficiary designations are mainly used in estate planning to keep financial accounts out of the probate process. Probate is a long, expensive legal process through which the assets of a deceased person are managed and distributed, under court supervision. With proper estate planning, probate can and should be avoided altogether.

Financial accounts that do not have designated beneficiaries are considered “probate property” and will have to pass through the probate process. For example, imagine someone had $10,000 in a bank account when they passed away. If there is no beneficiary designated on the account, then it is considered “probate property”. This means the person’s family will have to go through probate to access the money in the account.

To keep property out of probate, it must be turned into a “non-probate property”. Most financial accounts can easily be made into non-probate property. This is usually done by making a beneficiary designation. With a beneficiary designation in place, when you die, beneficiaries can simply present your death certificate to the bank and collect the funds — much better than having to go through the probate process.

Making a beneficiary designation

Beneficiary designations can be made on any kind of financial account, including simple bank accounts, general investment accounts, retirement plans, and more. Most financial institutions have a well defined process for handling this. Beneficiary designation forms are generally fill-in-the-blank forms that must be filled out at the financial institution. Some financial institutions with more modern business processes allow you to set beneficiary designations entirely online.

Additionally, many institutions make designating beneficiaries a standard part of their signup process. So, it is a good idea to set beneficiary designations at the time of setting up a retirement account or larger financial plan. It’s also important to keep beneficiary designations updated, because the people you designated at the time you created the account may not be the same as you have in mind today.

Once you submit your completed beneficiary designation form, the institution will process your form and update the details of the account, and then the account becomes non-probate.

Modifying or revoking a beneficiary designation

Similar to how you create one, modifying or revoking a beneficiary designation on a financial account is generally done through the financial institution itself. Typically, the institution will have you fill out a new beneficiary designation form with the updated information which will replace your previous one.

Remember, if you fully revoke a beneficiary designation then the account becomes probate property.

Do I need an attorney to create a beneficiary designation?

No, you do not need an attorney to create a beneficiary designation. As mentioned, designating a beneficiary for a financial account is generally done through the institution itself. Simply contact your bank or financial institution and follow their procedures to have the beneficiary designation created and submitted.