Do Bank Account Beneficiaries Override a Will?

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Attorney, distinguished law professor

Effective estate planning often requires the use of several different estate planning tools operating at the same time to accomplish your overall estate planning goals. For example, to transfer property to your loved ones upon your death, you might use several different estate planning tools, including a will, a trust, a life insurance policy, a retirement plan, and a bank account beneficiary designation.

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It’s rarely the case that any one of these resources is used to transfer all of the property in a person’s estate. Instead, effective estate planning is often accomplished by using individual tools to transfer specific pieces of property. 

Two very common tools for transferring property upon death are bank account beneficiary designations and wills. For many people, it’s important to use both. However, using both of these estate planning tools can lead to complications and confusion if you don’t use them properly.

This article will explain how to avoid these problems and how to effectively use a bank account beneficiary designation and a will to accomplish your estate planning goals.

What Happens if Bank Account Beneficiaries Are Different Than What’s on the Will?

One problem that often occurs when using a bank account beneficiary designation and a will is that each resource names a different beneficiary to receive the same property. This can happen very easily, especially when time has passed between when you opened the bank account and when you executed your will.

For example, you may have opened a bank account many years ago and designated a beneficiary to become the owner of the bank account upon your death. However, perhaps you executed or amended your will years later and named another person in your will to receive the money in your bank account when you die. Maybe you opened the bank account so long ago that you forgot who you named as the beneficiary, or maybe you simply decided to change the beneficiary of your bank account in your will.

Whatever the reason for the difference may be, when a bank account beneficiary is different from the beneficiary named in a will, there’s a conflict between the beneficiaries and who has the right to receive the proceeds in the bank account upon your death. 

When this happens, the conflict is almost always resolved in favor of the bank account beneficiary. This is because when you open a bank account and designate a beneficiary to receive the account when you die, it’s like signing a contract with the bank. In that contract, you and the bank agree that, when you die, the only person the bank can transfer the bank account to is the beneficiary you name in the contract. 

In fact, the contract with the bank likely will include language that says that even if you name someone else in your will, your contract with the bank will supersede any conflicting designations in your will.

If your will is then submitted to the court for probate with a different beneficiary, the court will not honor the designation in your will because you already signed the contract with the bank, authorizing it to transfer your account to the beneficiary named in the contract. Once you sign that contract with the bank, you cannot change the beneficiary with your will; you can only change it with the bank.

What Happens If There’s No Beneficiary on a Bank Account After Someone Dies?

Another common problem arises when a bank account owner dies without having named someone as a beneficiary of the account. In this case, there is no contract with the bank that requires the bank to transfer the proceeds to a specific person. When this happens, the proceeds of the bank account will be transferred in one of two ways:

  • Through the owner’s will.  When the bank account owner dies without having named a beneficiary with the bank, the proceeds in the account become part of the owner’s probate estate upon their death. This means that the account may be subject to the owner’s will. So if the owner named a beneficiary of the bank account in their will, the probate court will transfer the proceeds of the bank account according to the terms of the will. However, the probate process takes time and can delay the distribution of the proceeds in the account.   
  • Through “intestacy.” Alternatively, if the bank account owner failed to designate a beneficiary with the bank and died without a will (or without naming a beneficiary of the bank account in their will), then the owner is said to have died “intestate.” This means that the probate court will transfer the proceeds of the bank account according to the state laws of “intestacy.” These normally require property to be transferred to the owner’s closest living relatives. This may not be what the account owner wanted to do with the account.

If you do not want your bank account to be transferred to your closest living relatives when you die, then it is critical to either name a beneficiary of your bank account in your will or designate a bank account beneficiary with the bank. But you cannot do both and name a different beneficiary in each. If you do, your beneficiary designation with the bank will likely trump your beneficiary designation in your will, as explained above.    

How to Make Sure Your Bank Account Goes to the Right Person When You Die

There are several ways to make sure your bank account goes to the right person when you die. Each way can be effective, but some methods are easier and more reliable than others. Here are the best ways to control who gets your bank account when you die and the steps you should take to accomplish them.

Designate a bank account beneficiary

Opening a bank account and designating a beneficiary to take ownership of the account when you die is the most efficient way to make sure your account goes to the person you choose when you die. To do this, simply:

  • Open a new account with your bank and designate a beneficiary for the account (or you may designate a beneficiary on an existing account, depending on your bank’s policies and the type of account you currently have). 
  • Make sure the beneficiary you designate knows that you named them as the beneficiary and that they agree to receive the account upon your death.
  • Be sure to consider your named beneficiary at least every year. At some point, you may consider changing the beneficiary. If you do, you must change the beneficiary with the bank; you cannot change the beneficiary in your will.

The benefit of this method is that you avoid the probate process when distributing the bank account upon your death. A beneficiary designation is known as a “TOD” (transferable on death) account. It automatically transfers to the beneficiary upon your death and is not subject to a lengthy and expensive probate process. This can be important if the beneficiary depends on the proceeds of the account right away. 

Name a beneficiary in your will

If you don’t designate a bank account beneficiary with the bank, you can name a beneficiary in your will to receive your bank account proceeds when you die. Naming a beneficiary in your will can delay the distribution of the proceeds because they have to be distributed by the probate court, not the bank, but it assures that the proceeds of your account will go to the person you name in your will. To accomplish this:

  • Be sure to identify the appropriate bank account in your will by clearly identifying:
  • The name of the bank
  • The type of account 
  • The account number
  • Clearly identify the beneficiary who you want to receive the account when you die.
  • Make sure the beneficiary agrees to receive the account upon your death

If you don’t name a beneficiary in your will, your account will pass through the probate process according to the intestate distribution laws, which means it will pass to your closest living relatives.

Of course, you can’t know who your closest living relatives will be when you die. So intestate distribution is not a reliable way to make sure your account goes to the person you want to receive it.  

Designate Your Bank Account Beneficiary

When you designate a bank account beneficiary with your bank, your account becomes transferable upon your death. When you die, your beneficiary will automatically receive the rights to the proceeds in your account. 

If you don’t designate a beneficiary with your bank, you can name a beneficiary in your will, but the proceeds of the bank account will have to go through the probate process, which can take time. Just remember that if you named a beneficiary with the bank, you cannot use your will to change that beneficiary.

Whether you use a bank account designation or your will, be sure to reconsider your beneficiary at least once a year to make sure this is still the beneficiary you want to receive your account upon your death. 

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