Banking Beneficiaries

Bank account beneficiary rules govern the designation of individuals or entities who will receive the funds in a bank account upon the account holder’s death. The specific rules and procedures can vary depending on the jurisdiction and the type of bank account involved.

Trust Account:
A type of bank account held within a living trust, also known as a revocable trust or inter vivos trust. The account is established in the name of the trust, and the trustee has the authority to manage and control the funds in the account on behalf of the trust. A living trust is a legal entity created during a person’s lifetime to hold and manage assets. The person who establishes the trust, known as the grantor or settlor, transfers ownership of their assets into the trust for the benefit of themselves and/or designated beneficiaries.

When opening a living trust bank account, the bank will typically require documentation to establish the existence of the trust, such as the trust agreement or a certificate of trust. As the trustee, you have the authority to manage and use the funds in the living trust bank account for the benefit of the trust beneficiaries as outlined in the terms of the trust document. This may include making deposits, writing checks, conducting electronic transactions, and managing investments.

One of the primary advantages of holding assets, including bank accounts, in a living trust is to avoid the probate process. Upon the grantor’s death, the assets in the trust, including the funds in the trust bank account, can pass to the designated beneficiaries without going through probate.

Totten Trusts:
Also known as informal revocable trusts or payable-on-death (POD) accountwhich designates a beneficiary to receive the funds upon their death. The account holder maintains full control over the account during their lifetime and can freely withdraw or use the funds. The beneficiary has no access or control over the account until the account holder’s death.

The account holder can typically change or revoke the beneficiary designation at any time during their lifetime which allows them to modify their estate planning arrangements as needed. POD accounts usually do not require formal legal documentation, the account holder completes a beneficiary designation form provided by the bank.

The takeaway is that upon the account holder’s death, the funds in the Totten trust automatically pass to the designated beneficiary outside of the probate process. This bypasses the need for court involvement and potentially expedites the distribution of funds to the beneficiary.

Joint Accounts:
In joint accounts, the account holder designates a co-owner of the account who has rights to the funds while the account holder is alive. As such, each account holder has an equal ownership interest in the account. This means that all account holders have equal rights to deposit, withdraw, and manage the funds in the account.

One significant aspect of joint bank accounts is the right of survivorship. In the event of the death of one account holder, the funds in the account automatically pass to the surviving account holder(s) outside of the probate process. This means that the surviving account holder(s) have immediate access to the funds.

If a bank account does not have a designated beneficiary or is not held jointly, the funds in the account typically become part of the account holder’s estate upon their death. The distribution of these funds will be governed by the account holder’s will or the laws of intestacy if there is no valid will.

Please see our other related articles

Wills and Trust
Holding Title to Property

Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax, or other professional services. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.

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