Do Bank Accounts with Beneficiaries Have to Go Through Probate?

by | Jan 20, 2023 | Blog, Estate Planning, Probate, Probate And Estate Administration |

Bank accounts are often the subject of many questions when dealing with estate planning. Different type of bank accounts exist and the rules governing them can differ according to state laws and the particular bank’s policies. California Estate Planning Attorney Alice A. Salvo has the answers to your questions about the best ways to handle bank accounts in your estate planning. Here she answers a rather uncommon question, “Do bank accounts with beneficiaries have to go through probate?”

Can Bank Accounts Have Beneficiaries?

Most people have never heard of a bank account having beneficiaries because most banks never mention this option to account holders. Indeed, banks do not require accounts to nave named beneficiaries and some do not allow it. You should check with your bank to see if this option is available for your checking, savings or other accounts.

If your bank allows it, naming a beneficiary or beneficiaries for your accounts can be a valuable tool in your estate planning. The primary benefit it that is allows your accounts to be transferred directly to your beneficiaries without going through the hassles of probate. Since this process can take a year or more in California and cost your loved ones considerable funds, it is something to be avoided when possible.

Many banks will actually convert your bank account with named beneficiaries into what is known as a Payment on Death (POD) account, or Transfer on Death (TOD) account. This simply designates the account as the type that will go to beneficiaries on the death of the account holder.

8 Rules for How Bank Accounts with Beneficiaries are Handled Upon Your Death

There are certain guidelines that banks follow with accounts that have named beneficiaries. You should become familiar with them when considering naming beneficiaries for your accounts as part of your estate planning. Here are eight rules for how banks handle accounts with beneficiaries.

  1. Account Ownership with Beneficiaries – Any bank account, regardless of the type, remains yours and the assets are yours to control, no matter when or whom you name as beneficiaries. The assets only revert to your named beneficiaries upon your death.
  2. Joint Accounts and Beneficiaries – Any accounts owned jointly with another person will pass to the living co-owner on your death, even if you named beneficiaries. The co-owner’s rights supersede those of your beneficiaries. This is an automatic process that avoids the probate process.
  3. Naming Account Beneficiaries – Much flexibility is allowed when naming beneficiaries to your bank accounts. You may name any living person, organization, non-profit, trust, another savings account, certificate of deposit, brokerage account or retirement account.
  4. Multiple Beneficiaries on Your Account – If you choose to name more than one beneficiary for your account, the assets in the account will be divided equally between them.
  5. Contingent Beneficiaries – You may also name a contingent beneficiary for your account. This person would receive your account assets if the primary named beneficiary passes away before you, or is otherwise unable or unwilling to accept the funds.
  6. Changing Beneficiaries on Your Account – As long as you are living, you may change the beneficiaries on your accounts at any time. In fact, it is a good idea to review your account beneficiaries yearly as part of a regular estate planning review. Family circumstances and relationships change, and deaths, marriages, divorces or other events could influence who you want as a beneficiary on your accounts.
  7. Beneficiaries Trump Wills – Keep in mind that your legal beneficiary choices on the account override any provisions made in a will. Even if you exclude someone from your will, if they remain a beneficiary on a bank account, they will receive the account funds upon your death.
  8. When Beneficiaries Die – It is possible that all your named beneficiaries could die before you. In that case, and if you have not named new beneficiaries at the bank, the funds in the account will fall under the instructions provided in your will and will be subject to probate.

Get Estate Planning Help in California

Estate Planning Attorney Alice A. Salvo can help with your estate planning needs in California. Bank accounts and other assets should be protected from probate where possible to spare your loved ones the delays, hassles and costs of that process. Contact her office today to schedule an estate planning consultation to get more information and assistance.

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