Not too long ago, I opened a Health Savings Account. One of the questions I was asked when I opened the account was this: Who is your beneficiary?
This is a very important question that many people don’t think much about. It’s a little bit easier to remember include beneficiaries on insurance policies — especially life insurance. However, it is less common to think about who will get the money from your bank account, or from your retirement account.
Bank Account Beneficiaries
When you have a bank account, the money in your account doesn’t automatically go to your spouse or someone else. With a joint account, of course, the money is accessible to the other person without any trouble if you should die. However, if you have the account in just your name, your spouse or other heirs can’t access the money without going through the probate process. And, when it comes to bank accounts, simply stating what you want to have happen in your will isn’t always enough to avoid probate.
When you open a bank account, find out if there is a way for you to indicate beneficiaries. This is often referred to as “payable on death” or “transferable on death.” When you die, your money is automatically available to the person you designate. This can make things easier for those remaining.
You must also realize that not all banks have this policy. I was surprised to find that ING doesn’t allow you to designate any sort of beneficiary. That means that probate is virtually guaranteed if I should die — even though it’s my wish that my husband get the money.
If your bank doesn’t offer you the chance to indicate a recipient for your money, and it’s important to you that your heirs avoid probate, consider moving your money to a different bank.
Updating Beneficiaries
Chances are that your retirement accounts, investment accounts and insurance policies all have beneficiaries listed already. If things change, you should update your list as soon as possible. Changing your will isn’t enough to alter your beneficiaries, either. If you change your will, but forget to change the beneficiary of your 401(k), what’s on the 401(k) paperwork is what will be honored.
Periodically review your beneficiaries, especially if major life events like marriages, births, divorces and deaths will alter who should receive your money. Then, find out the process required to make changes to your beneficiary designations. Chances are that you don’t want your ex getting the benefit of your life insurance policy; you might want to make sure your new spouse, or perhaps your children, benefit instead.
Bottom Line
Probate can be expensive and messy. If you don’t want to put others through the mess, it’s a good idea to check your accounts for beneficiaries. Make sure that your beneficiaries are up to date, so that the “right” people have access to your money after you are gone. Your money will be distributed more smoothly, and you can have the peace of mind that comes with knowing that you have done everything in your power to ensure that your wishes will be followed.
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Nice summary. Of course you do need to do enough planning to be certain that there is cash available for any taxes (including not yet due income taxes), final expenses, and similar expenses. The alternative of chasing beneficiaries for pro rata contributions is not a pleasant thought.
Been a long-time ING customer, yet this might be a reason I might consider looking at ALLY. I don’t like dealing with the hassle of making the change, but I like the fact that I can name beneficaries.
I got Ally and in the process of opening an account they ask who you want getting your money, but I think after reading this I need to go back and check every policy and account I have to update them all.
Great article! Probate can be a real mess and can drag on at exactly the time some cash flow is needed. Wow, I did not know that ING does not allow you to designate beneficiaries – I better go and look at this! Thanks for posting this…
Yeah, I was surprised, too, when I opened an account with ING. Hopefully, I’ll be done with ING before I pass on.
Good article! You have beneficiaries. You just may not like the ones the state will chose for you.
This is such a good point. When you go through major life changes it is easy to forget things such as beneficiaries. You don’t want to wait until it’s too late to realize that you had the “wrong” person designated!