What Is the Law for Beneficiary Designation for Bank Accounts?

by Michelle Cheri

    Planning for distribution of your assets after your death can be a complex and confusing process. Naming beneficiaries for each of your bank accounts is perhaps the simplest, and most important, step you can take to protect your assets and ensure they are passed properly to the intended recipients following your death.

    Beneficiary Basics

    Federal banking regulations allow a bank account holder to designate another person to receive the balance of the account in the event of his death. The person designated to receive the funds after the account holder’s death is called a beneficiary. You must record beneficiaries using the financial institution’s official beneficiary designation form, then sign and return the form to the bank for the designations to take effect. Once beneficiaries are named, a bank account is referred to a "payable on death" account, and is classified as a revocable trust account by the Federal Deposit Insurance Corp. Naming a beneficiary does not grant the beneficiary access to any of the funds or services associated with the account while you are still alive.

    Who Can Be Named as a Beneficiary?

    You can name any individual person as a beneficiary on a bank account, but charitable groups and non-profit organizations can be named only if the Internal Revenue Service formally recognizes the group or organization as a nonprofit or charitable entity. You can also designate multiple primary beneficiaries and secondary beneficiaries on the same account by noting the percentage of the account balance each beneficiary is entitled to receive after your death.

    Extended FDIC Insurance Benefits

    The FDIC insures bank deposits up to $250,000 per person, per financial institution. However, by naming beneficiaries to your bank accounts, you can actually increase the amount of deposit insurance guaranteed at that bank. Each of the unique beneficiaries designated on an account increases your available FDIC insurance by another $250,000 at that particular financial institution. The designated beneficiaries must be recorded on the beneficiary designation form kept on file at your financial institution to extend your FDIC protection.

    Bank Account Beneficiaries and Probate Court

    Federal banking regulations allow for funds in a bank account with a valid beneficiary designation on file to pass directly to the intended recipients. The beneficiaries are entitled to receive the entire balance of the available funds from a payable on death account, or transfer a "transfer on death" account to their own name without waiting for the reading of a will or the release of the estate by a probate judge or administrator. The beneficiaries can secure the funds simply by presenting a copy of the account holder's death certificate and valid photo identification to a bank officer.

    About the Author

    Michelle Cheri is a paralegal, mediator, writer and self-proclaimed bibliophile. Her published work includes pieces on legislative bias, open government/court proceedings, legal ethics, general legal topics and personal finance. Prior to entering the field of law, Cheri studied culinary arts in Austria and France. Cheri enjoys travel, reading, live music, and perfecting the art of the green smoothie.

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