Once you pass away, there are various things that could happen with your bank account. Much of this can depend on how you have your account set up. Also, whether or not you have a will or trust can make a difference. The important thing is you take action to make sure the funds in your bank account will be distributed to the beneficiaries you prefer.
One of the simplest ways of ensuring the money in your bank account goes to your heirs is by naming your beneficiaries on your account ahead of time. Through your bank or financial institution, you can name what is known as payable-on-death (POD) beneficiaries. These are special types of beneficiaries which allow them to bypass the probate process in order to obtain the funds in your bank account directly in the case of you dying without having a will or trust in place.
Create a will
Having a will provides guidelines on how you want your assets, including money in your bank account, distributed after your death. Although a will does not guarantee your heirs will avoid the lengthy probate process, it will make the process significantly easier and straightforward.
Set up a trust
Another way to provide guidance on how you prefer your assets, including funds in your bank account, to be distributed is by setting up a trust. This type of legal instrument can help beneficiaries bypass the expensive and time-consuming probate process. However, there are several types of trusts which have their own advantages and disadvantages. A financial expert can explain your different options for setting up a trust.
Add heirs as account holders
One of the easiest methods of ensuring your preferred beneficiaries receive the funds in your bank account is to add your heirs as joint account holders. Usually, joint account holders are classified as joint tenants with rights of survivors (JTWROS), therefore the account simply passes to your beneficiary joint account holders in the case of your death.
Although adding beneficiaries as joint account holders may make things simpler for estate planning purposes, it can also pose problems while you are still alive. This can be the case if your joint account holders are not exactly responsible when it comes to managing money. Also, the money in the account will be considered in the possession of your beneficiaries for the purposes of determining qualification for government assistance programs. The funds can also be susceptible to creditors of your beneficiaries.
Consequences of doing nothing
If you have made no preparations regarding what happens to your funds in your bank account after you pass away the account will have to go through the probate court process. The funds in the account and the rest of your assets will be distributed in accordance with state law if you have no estate planning in place at all.
This could prove costly to your preferred heirs, and they may even end up not receiving your assets in the end. Therefore, you should do what you can to avoid this scenario by making sure you have a comprehensive estate plan in place.
Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we do not provide advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.