Can a Bank Turn Over a Bank Account to a Sole Heir Without Probate?

By Michelle Hart

People have a wide range of preferences regarding what happens to their personal assets after their deaths. Unfortunately, without careful and individualized planning, distribution of your property to surviving loved ones may be restricted by probate court, even if you have only one heir. However, in some instances, federal banking regulations allow the funds deposited in financial institutions to be disbursed directly to beneficiaries upon the account holder's death.

People have a wide range of preferences regarding what happens to their personal assets after their deaths. Unfortunately, without careful and individualized planning, distribution of your property to surviving loved ones may be restricted by probate court, even if you have only one heir. However, in some instances, federal banking regulations allow the funds deposited in financial institutions to be disbursed directly to beneficiaries upon the account holder's death.

Designating a Beneficiary

Designating a beneficiary to your bank accounts using your financial institution's official beneficiary designation form may be one of the most important estate planning steps you can take. After obtaining your bank's official form, list the intended recipient's name, address and Social Security number. Sign the form, have it notarized if necessary, then return it to your bank. As an additional safeguard, ask the branch manager at your bank to sign and date the form as well to acknowledge receipt of the information, and retain a copy for yourself.

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Checking and Savings Accounts

The funds within individually owned checking and savings accounts can bypass probate and be distributed directly to any individual, or any charity or nonprofit organization recognized by the IRS, that is named as a beneficiary on the account. The beneficiary must simply show the bank a copy of the account holder's death certificate, along with any photo identification and additional documentation required, to request disbursement of the account balance.

Certificates of Deposit

Banks and credit unions have varying policies regarding the distribution of funds held in a certificate of deposit. A single beneficiary may request immediate distribution of the funds by presenting valid photo identification and a copy of the account holder's death certificate. Alternatively -- depending on the financial institution's policies -- the beneficiary may allow to the CD to continue maturing for a specified length of time in the original account holder's name, or transfer the CD to her own name. Regardless, the CD funds are not required to pass through probate prior to distribution as long as a beneficiary is named on the account.

Individual Retirement Accounts

Both federal and state laws govern the disbursement of individual retirement account funds after the account holder's death. Federal law allows the distribution of funds to occur directly to a beneficiary, without the involvement of a probate judge or administrator. However, if you are married and wish to designate someone other than your spouse -- such as a child or grandchild -- as the beneficiary on your retirement account, many states require the IRA plan administrator to have a waiver signed by your spouse before funds can be released to a non-spouse beneficiary after your death. Be sure to check the applicable laws in your home state, and if necessary, have your spouse sign the required waiver for submission to your IRA plan administrator as an addendum when you submit your beneficiary designation form.

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What Is the Law for Beneficiary Designation for Bank Accounts?

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Do IRAs Override a Last Will & Testament?

The beneficiary form you complete when you open an IRA is like a “mini-will” for your retirement account. Because your IRA comes with its own built-in beneficiary, it doesn’t need to pass to beneficiaries through your will; it goes directly to the named beneficiary and bypasses the probate process. Failure to name or update a beneficiary can have severe financial consequences for those who eventually end up owning the IRA.

How to Name a Trust as Successor Beneficiary of an Inherited IRA

When someone creates an Individual Retirement Account, she names a beneficiary to inherit whatever remains in the account at her death. Depending on the IRA plan document or the rules of the custodian, the IRA owner or the IRA owner's beneficiary may be able to name a successor beneficiary for any remaining account balance at the primary beneficiary's death. This can be an individual or individuals, the decedent's estate or a trust. One advantage to naming a trust as successor beneficiary is control over how and when distributed assets will be paid out to heirs. For example, if, as a primary beneficiary, you want your child to receive your undistributed IRA inheritance, but don't want her to have access to those funds until age 21, the IRA account will be distributed to the trust based on IRS distribution rules, however, the trust document will specify that the trustee should not distribute those funds to your child until she reaches age 21.

Transfer on Death Vs. Beneficiary

It can take years to settle a decedent’s estate through probate, and the executor usually can’t transfer any of the decedent's assets to his beneficiaries until she has addressed and resolved many other issues. This means that if you intend that your spouse should have access to your checking account after your death, she can’t access the money unless you title the account in a way that avoids probate. Otherwise, it belongs to your estate until your executor settles and closes it, and that could be a long time.

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