What happens to the $$ in your checking and/or savings account when you die? Many people assume their will determines this—but they’re often wrong.
Access to cash in life, during illness, and after you’re gone is why I’m writing about beneficiaries for your bank account today. This question comes up often in my work with clients.
Image by Peggy und Marco Lachmann-Anke from Pixabay
How Bank Account Beneficiaries Work
To put it simply, whoever you name as the beneficiary on your bank account typically receives the funds directly. The process that transfers the funds is called POD (payable on death) or TOD (transfer on death).
In most cases, these funds avoid probate and override what’s in a legal document (will or trust). This is crucial to understand: even if your will says everything goes to your spouse, if your bank account lists your sister as beneficiary, your sister gets that money. Beneficiary designations are binding contracts between the account holder and the financial institution that will honor whoever is named at the time of death.
How to Designate a Beneficiary
The process is straightforward:
- Contact your bank, credit union, financial institution, and ask them how to proceed in accordance with their rules (different rules for different financial institution is a reality
- Request a beneficiary designation form and complete their specific form to designate who you’d like
- Provide the full legal name, date of birth, Social Security number, and relationship of your beneficiary
- Keep a copy for your records and inform your beneficiary
- Most banks don’t charge a fee for adding or updating beneficiaries.
Understanding Your Beneficiary Options
Primary vs. Contingent Beneficiaries
You can name multiple layers of beneficiaries: Contingent (or secondary) beneficiaries only receive funds if all primary beneficiaries have predeceased you, and Primary beneficiaries receive the funds first.
Multiple Beneficiaries
You can name more than one person and specify the percentage each should receive. For example, you might designate your three children to each receive 33.33% of your account.
What Happens If You Don’t Name a Beneficiary
If no beneficiary is named (or if all named beneficiaries have died before you), the funds typically:
- Go through probate
- Are distributed according to your will, or
- Are distributed according to state intestacy laws if you have no will
This process can take months or even years, leaving your loved ones without access to funds when they need them most.
Joint Accounts vs. Beneficiary Designations
If you have a joint account (common for married couples), the surviving account holder automatically retains full access to the account. The beneficiary designation only takes effect after all account holders have died.
For example, You and your spouse have a joint account with your daughter named as the beneficiary. When you die, your spouse keeps the account. Only when your spouse later dies does your daughter receive the funds—unless your spouse has changed the beneficiary in the meantime.
Tax Implications
In most cases, bank account beneficiaries don’t owe income tax on inherited funds. However, very large estates may be subject to estate taxes (though most estates fall below federal exemption limits). Interest earned on the account after the date of death is taxable income to the beneficiary and state inheritance taxes may apply in some states. Consult with a tax professional about your specific situation.
When to Update Your Beneficiaries
It’s so important to update your beneficiaries after major life changes, including:
- Marriage or remarriage
- Divorce or separation
- Birth or adoption of children
- Death of a named beneficiary
- Significant changes in relationships
- Major financial changes
It is highly recommended to review all your beneficiary designations annually, just as you would review your insurance policies or retirement accounts.
What You Should Do Right Now
Don’t put this off. Here are your next steps:
- Make a list of all your bank accounts, including checking, savings, money market, and CDs
- Contact each institution to find out who (if anyone) is currently listed as beneficiary
- Review and update beneficiary designations to reflect your current wishes
- Coordinate your beneficiary designations with your overall estate plan (consult an estate planning attorney if needed)
- Document everything – keep copies of all beneficiary designation forms with your important papers
- Set a calendar reminder to review your beneficiaries annually
Image by Mohamed Hassan from Pixabay
Incapacity
I would be remiss if I didn’t mention incapacity and how that impacts your bank account. In the case of incapacity, your bills still need to be paid.
Incapacity is a term used across different areas of the legal landscape that reflects one’s inability to perform various functions. Common uses include: A lack of physical or mental/cognitive ability that results in a person’s lack of ability to manage their own personal care, property, or finances.
A durable Power of Attorney for Finance allows someone to access your finances, including checking account, investments, and property, in order to pay your bills. A Durable Power of Attorney is valid even if you are incapacitated.
Because each financial institution has its own protocol, I suggest you speak directly with your financial institution about what they require in case of incapacity and death.
Taking time to complete these steps now could save you and your loved ones heartache, expense, and time. Let’s make sure your money goes exactly where you want it to go, and you have access to it when you need it.
If you have questions about any of this, please reach out. Pop me a note via Email or check out what I offer @ The Living Planner.
If you prefer a Zoom connect, Book a Time with Lynn for a complimentary 30-minute Zoom with me. If you’re one who likes to pre-plan, my book is a resource for you. The 2026 edition of Living Planner What to Prepare Now While You Are Living © is being printed! Check it out HERE.
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Make time for these details – Lynn
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