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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Types of Beneficiaries
Technically, a beneficiary is anyone or any entity who receives property from you after your death. This commonly occurs when property conveys through a last will and testament. You might leave all your property to a group of individuals, such as your children, or you might leave specified items to each person. They’re all your beneficiaries under the terms of your will. Life insurance policies and retirement accounts also have beneficiaries. You can name an individual, such as your spouse, or you can name your estate as your beneficiary in your contracts with these companies and financial institutions. They'll receive these assets when you die.
Types of Transfer-on-Death Accounts
A transfer-on-death account also has a beneficiary, because it transfers to someone when you die. A transfer-on-death account is one set up by arrangement with your banking institution to pay the balance to someone named by you at the time of your death. If you want to leave your spouse your checking account, you can either bequeath it to her in your will, or you can name her as the beneficiary of your transfer-on-death account. Another way of transferring such a bank account is to use the word "or" when naming the account owners. For example, when an account is held in the names of "Jane or John Doe," Jane becomes the sole owner of the account when John dies.
The greatest difference between a will beneficiary and a transfer-on-death beneficiary is that transfer-on-death beneficiaries can reach the asset immediately when you die. Transfer-on-death accounts do not have to pass through probate. They’re not part of your probate estate, because they don’t require the probate process to legally transfer title or ownership. If you bequeath the account in your will, your beneficiary can’t access the money until your executor settles your estate and closes probate. Worse, if you leave more debts than assets, your beneficiary may never see the money at all. Your executor must first use all the funds that are part of your probate estate to satisfy your creditors. Your beneficiary receives whatever money remains, if any.
By law, contracts supersede the terms of your will. Therefore, the beneficiary of your transfer-on-death account receives that money, even if you state in your will that you’re leaving the account to someone else. The same holds true for all your beneficiaries by contract. If you name your spouse as the beneficiary of your life insurance policy, but state in your will that your son receives the death benefits from that policy, your spouse receives the proceeds, regardless of what your will says.