Why Bank Account Beneficiary Designations Matter in Your Estate Plan

When it comes to planning your estate, it’s easy to overlook the impact that bank account beneficiary designations can have. These designations—and the structure of your accounts—can play a crucial role in making sure your assets are distributed according to your wishes. Let us dive into why they matter and how to avoid common mistakes that could leave your loved ones in a tough spot.

1. Beneficiary Designations Override Your Will

Did you know that your bank account beneficiary designations (like Payable on Death or POD) actually override what’s written in your will? Even if your will says your assets should be split evenly among your children, the person named on your account gets everything—no matter what the will says. That is important, especially if you think everything will be taken care of by your will alone.

2. The Limitations of Beneficiary Designations

Beneficiary designations might seem like a quick and easy way to skip probate, but they come with some big limitations:

• Minors cannot inherit directly. Banks will not release funds to a minor, and naming a child as a beneficiary can create legal headaches.
• No custom percentages. Most banks do not let you split funds among multiple people at different percentages.
• No per stirpes distribution. If a beneficiary passes away before you, their share usually goes to the other living beneficiaries—not to their own children. This means your grandchildren could be unintentionally left out.

3. Proper Structuring Is Key

Naming beneficiaries on your bank accounts is not a bad idea—but it is essential that you understand how to properly do it so your designations align with your overall estate plan.

4. Common Mistakes to Avoid Here are some real-life mistakes that can derail even the best-laid plans:

• Adding a child as a joint owner. Many parents add a child as a joint owner so they can help pay bills. But when you pass away, that account automatically becomes that child’s property—even if your will says everything should be split among all your kids. Instead, consider adding your child as a signer (if your bank allows) or naming them as your agent under a statutory durable power of attorney. This way, they can help manage your finances without accidentally disinheriting your other children.
• Naming the executor as the sole beneficiary. Some people name the child they have chosen as executor as the only beneficiary on their account, thinking they will distribute it fairly. Legally, though, that money is theirs alone, and your will is bypassed.
• Failing to update after a beneficiary dies. Imagine a parent who names both children as beneficiaries on their bank account. If one child dies and the parent never updates the account, all the money will go to the surviving child—leaving the deceased child’s children (the grandchildren) with nothing. To avoid this, name your estate as the beneficiary. That way, your will can ensure fair distribution, including grandchildren, if that is what you intend.

5. Final Tips

• Review your accounts regularly. Life changes—and so should your beneficiary designations.
• Make sure your designations align with your overall estate plan to avoid unintended consequences.
• Remember: setting up your beneficiary designations correctly is one of the simplest but most powerful things you can do to make sure your wishes are honored.

Take Action Today – Contact J Nichols Law for Help

Do not wait until it is too late. Review your bank account beneficiary designations today and make sure they match your estate planning goals. If you’re unsure about the best way to structure your accounts, talk to an estate planning professional who can help you get it right.

Need help getting started? Contact us to schedule a consultation and make sure your estate plan is in the best shape possible.