It’s a question I pose to people that is often met with confusion and surprise. “I had not thought about that!” they say. “It’s ok, I have a will,” another will say.
I am glad you’re here, because I am going to provide some much-needed clarity on this topic. You might be surprised by what you learn.
First, what’s the difference between a beneficiary and a co-owner on an account? A co-owner has just as much right to do anything on the account that the owner can do. That means a co-owner can deposit, withdraw, change the address, close the account, etc. So, a co-owner needs to be a person you trust to have that kind of authority if it’s an account that basically belongs to you. Co-owners must sign all relevant bank documents any time a change is made.
A beneficiary can’t do anything on the account unless the owner dies, and the beneficiary produces a death certificate. The beneficiary doesn’t even need to sign a signature card to be added as such.
Second, a beneficiary designation supersedes a will. This means if the owner has a will that says something like, “Johnny inherits everything,” but Stewart is the only beneficiary named on the bank account, then Johnny doesn’t get any of that money—Stewart would get those funds. It doesn’t matter what your will says—the named beneficiary receives the funds in a bank account. Of course, it could be challenged, and the outcome of such could go any direction, but it makes the beneficiary’s life much easier if that person is named on the account.
Third, if there is NO beneficiary listed, but there IS a will that names someone, then that person still must go through probate and be named as the Executor/Executrix to get the funds. Then, they would still go through the bank’s legal department before anything happened. That process can take months. If the hope is for those funds to be used for your funeral, then the best you could hope for in this situation is a reimbursement. The person assigned to handle your funeral would initially come out of pocket and then fight for the funds later.
Also, if you have 3 children(and no will), and only 1 of them is a responsible adult, the other 2 could still drag that person through the system and mess up your hopes for your estate. Any of them could be named Executor, not just the responsible one.
So, is it a good idea to add a beneficiary on your account? ABSOLUTELY! Not just your bank account, but any financial account of any kind. This includes investment accounts, safe deposit boxes, etc. It’s always a good idea to name a beneficiary on each account. Simply naming someone in a will and hoping it covers everything isn’t enough. It may ultimately help your beneficiary get what they need, but it takes a lot more time if they aren’t specifically named on your accounts.
*One additional note of importance: Check with your state laws about having a minor as a beneficiary. For the most part, minors cannot inherit funds until they reach your state's legal adult age(for my state of Alabama, it's 19). That means if you die and your only beneficiary is 10, the funds will be placed into a special account to be managed by a guardian until the child reaches legal adult age. I would recommend naming an UTMA/UGMA account as beneficiary until your child is about to reach adulthood. You could also name another responsible adult who understands the funds are really for your child, but nothing would stop that person from going rogue.
