While anyone moves towards financial independence, there is a time to think about what would happen to one’s financial accounts if one were to most unfortunately pass away. It’s a morbid thought, no doubt, and it’s easily avoidable in a world where talking about death is difficult. I don’t like to contemplate my own mortality, but realism must sink in as one grows older, particularly when and if life as a single person gives way to the start of a family.
Planning for the inevitable future can involve wills and trusts, but there is a rather simple step that could help potential heirs avoid some problems. Probate could prove to be expensive and problematic, and investors or savers can add one or more beneficiaries to most financial accounts to bypass probate. The beneficiaries named on any financial account will be able to receive money left behind in that account following the death of the account owner without involving lawyers or a hassle.
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You can add a beneficiary or a payable-on-death (POD) to most savings and checking accounts. Sometimes, banks seek information about beneficiaries during the account opening process, but not always. Many banks don’t allow you to change beneficiaries online. For banks with brick-and-mortar branches, you may need to visit a personal banker with the beneficiary or with the beneficiary’s personal information (address, Social Security number, etc.) in order to change or add a designation. If you don’t see any options for adding beneficiaries online, contact the bank directly.
It’s also possible that some banks do not allow account holders to designate beneficiaries on deposit accounts. ING Direct is one such bank. Unfortunately, the heirs of the deceased’s estate could have problems receiving the balance in one of the most popular online bank accounts. If this is an issue for you, consider moving your money from ING Direct to a bank that allows payable-on-death designations. With a will or a trust, this designation might not be necessary. Of all the choices, however, POD is the easiest, and every bank should offer it.
Almost always, brokerages and banks will ask for a beneficiary when you open an investment account, whether the purpose of the account is short-term investment or retirement.
Don’t think that your accounts are too small to worry about how the funds will be distributed after you pass away. The accounts could grow, and even if they don’t, the funds you have could be important to someone in the future. With small balances, there is even more of an incentive to avoid costly probate fees.
If you’ve been through any sort of major life change, like a marriage, divorce, or the birth of children, you should take a moment to review your accounts to ensure the proper beneficiaries are listed. As a single guy, this hasn’t been a major priority for me, but as I age, I’ve started to recognize its importance despite the lack of a wife and children. This will be one of my first steps to ensure my funds get in the right hands at the right time, followed by creating a will.
Updated October 15, 2015 and originally published September 9, 2011.