Anytime you have an account with a named beneficiary, special rules apply. Now, not all assets with a named beneficiary skip probate. Therefore, if you are estate planning or you are an executor reviewing the law, it is best to speak with an estate planning attorney to see how named beneficiaries apply to your assets.
How Are Bank Accounts Distributed?
How your bank accounts pass at death will depend on the type of setup you chose when you initiated the account. It will also depend on whether you were the sole owner of the account, if you signed a payable on death document, and whether there are any applicable challenges to your named beneficiaries.
Bank Accounts with You as the Sole Owner
If you own a bank account that is in your name only, you might have had the option to sign a document designating a beneficiary for your account upon death. If, however, you do not sign a designation document, then your bank account funds would go through probate. The court would use the standard estate laws to determine who would receive the funds from your account along with the designations you have made in your will.
Therefore, this is an instance where bank accounts would go through probate court before funds are distributed.
Bank Accounts with a Named Beneficiary on a Payable-on-Death Document
Most financial institutions make the payable on death document optional. It is advisable that you pick someone when you create your account, and make sure that you update that document throughout your lifetime, especially if your beneficiary has changed. When you have a signed beneficiary document, the funds will not go through probate. Instead, that money is no longer part of your estate. The funds in the account will be transferred to the beneficiary you named on the document automatically.
To claim the funds, the beneficiary would need to go to the financial institution with current identification and a death certificate. The bank will already have the beneficiary designation form on file. They will verify that the person claiming to be your beneficiary is the correct party, and then they will transfer the funds into their name.
As you can see, it is essential to review your beneficiary designations. If you do not update this form, your funds will automatically transfer to someone that you may no longer wish to inherit your funds. If you cannot recall the party you designated when you opened your bank account, you can visit your financial institution in person and request a copy of the beneficiary designation form. You can then update it to a more recent beneficiary if you wish to do so. The beneficiary designation form overrides your final will. So, even if your will designate a different party, the bank honors the form instead.
Bank Accounts That Are Jointly Owned
Joint bank accounts are complicated. If you have a joint account with someone and one of the parties dies, usually the surviving joint owner automatically becomes the sole owner of the bank account. In this case, the account would not go through probate court. However, there are instances where the funds may go through probate court, or there may be a contest against who is the rightful owner of those funds.
Right of Survivorship Issues
When a bank account has two names owning the funds of that account, it is called a right of survivorship. That means, when one party dies, the surviving owner becomes the sole owner. Usually it is clear which party is the sole owner after the other party passes away. If, however, there are more than two parties, it may complicate determining how the funds will be distributed.
When Someone Contests the Joint Ownership
In most cases, when a couple owns a joint bank account, it is unlikely anyone would argue that someone else is entitled to the funds when one party passes away. However, there are instances where other family members or beneficiaries of the estate may argue that the other joint owner is not the intended beneficiary on the account. In this case, they would need to petition the court and have a hearing to determine the rightful owner of the funds.
Bank Accounts Held by a Trust
Another type of bank account that does not go through probate court is a bank account held by a living trust. When you set up a living trust, you pass overall assets to your trust and your trust is now the owner of those assets rather than yourself. All assets in your trust bypass probate court. If you have a lot of high-value assets and you want to save your family the hassle of dealing with probate court, creating a trust is most likely the best route for you and your loved ones.
Speak with a Local Estate Planning Attorney First – before You Assume Accounts Will Not Go through Probate
As you can see, there are plenty of instances where a bank account will not go through probate and other cases in which it will go through probate. Therefore, the only true way to see which bank accounts go to probate court and which do not is to speak with a local attorney in your area. An attorney can review the law, review any beneficiary designations, and then decide which accounts are likely to go through probate and which will automatically pass to the named beneficiary.
To explore your options, especially when it comes to protecting loved ones and ensuring bank account funds are distributed as you intended, contact attorney Andrew M. Lamkin, P.C. for a free case evaluation. Call 516-605-0625 to schedule now or contact us online with your questions.
Andrew Lamkin is principal in the law firm of Andrew M. Lamkin, P.C., where he focuses his practice in the areas of elder law, estate planning and special needs planning, including Wills and Trusts, Medicaid planning, estate administration and residential real estate transactions. He is admitted to practice law in New York and New Jersey.
Loading...