Reviewed by Natasha H. Applewhite, Esq.
Key Takeaways
- A payable-on-death account passes outside probate. New York calls it a Totten trust.
- Only three things revoke one: closing the account, a written revocation filed with the bank, or an express direction in your will naming the account.
- A divorce or separation agreement does not.
- These accounts still count toward a spouse’s elective share.
- Always name a backup beneficiary.
If you’ve already planned your estate by creating a will, you may be relieved that this process is over. However, it’s important to understand the additional estate planning tools and options to ensure that your estate is distributed efficiently and in accordance with your wishes. One option you may be unfamiliar with is choosing to designate beneficiaries for your bank accounts. If you’re unsure what the benefits of this option are or the steps involved in the process, you’ll want to keep reading. In addition, you’ll learn how a Long Island estate planning lawyer can help you through these matters so you can achieve peace of mind for the future.
What Are the Benefits of Naming Beneficiaries for Bank Accounts?
Designating a beneficiary for assets is also known as a payable-on-death designation. Beneficiary designation acts like an informal trust. This allows the named inheritors immediate access to the funds upon your passing. Naming beneficiaries for assets like bank accounts has several benefits.
New York has a name for this arrangement. An account held in your name in trust for someone else is a Totten trust, governed by Estates, Powers and Trusts Law Article 7, Part 5. You will see the term on bank paperwork and hear it from an attorney, and it means the same thing as a payable-on-death account. No trust document is required; the account itself is the trust.
One of the primary benefits of designating beneficiaries for your bank accounts is that it can help avoid probate. This is because the assets will immediately be transferred to your beneficiaries, provided they take a copy of the death certificate to the bank and confirm their identity. This is ideal, as probate can be a long and tedious process that leaves your beneficiaries without the assets left for them until the completion of the process, which can take up to a year, if not longer, for more complex estates.
Additionally, because this only becomes active upon your passing, you retain full control over your bank accounts during your lifetime. Unlike other options, which cause you to relinquish ownership of assets, naming beneficiary designations allows you to continue as normal, spending funds and even closing the account if you wish.
Which Accounts Can Carry a Designation
Understanding what types of accounts can carry a beneficiary designation is critical:
- Personal checking accounts
- Savings accounts
- Money market accounts
- Certificates of deposits
Investments and retirement accounts also utilize beneficiary designations, but they operate under different rules, and they are not part of the probate estate to begin with.
Joint accounts are different, since they may carry a right of survivorship that passes the account to the surviving owner automatically.
What Steps Must I Take to Designate Beneficiaries?
Designating a beneficiary for your bank account can be simple. Generally, the first step is to contact a representative at your financial institution to initiate the process. They will send you the forms you must complete, which typically entail naming a beneficiary. If you wish to name multiple beneficiaries, you may do so, but you must determine how much of the account they will receive. Once you have completed the form, you can return it to the bank, where they will store it on file.
It is important to name a backup beneficiary while you are there. If the only named beneficiary passes away, the designation will fail, and the account will become part of your estate, at which point the account will endure the probate process. Naming an alternate only takes a moment and can help preserve the point of the arrangement.
Your Will Can Override the Designation, but Only If Drafted Correctly
It is a common misconception that a beneficiary designation will beat a will. In New York, that is not quite right, and the difference is important.
Under EPTL § 7-5.2, a Totten trust may be revoked by a will, but only through an explicit direction that describes the account as being in a trust for a named beneficiary at a named financial institution. A general clause leaving everything to your children will not touch the account. A specific bequest of the account to someone other than the beneficiary will.
There are only three ways to undo one of these accounts:
- Withdraw the funds and close the account
- File a written, acknowledged revocation with the bank holding the account
- Revoke it expressly in your will, identifying the account as described above
There is no other option. New York courts have determined that a separation agreement in which the named beneficiary has given up all claims to the depositor’s estate did not revoke the trust, because none of the three statutory methods have been utilized.
A Spouse Can Still Reach It
These accounts do not result in a spouse being disinherited. Under EPTL § 5-1.1-A, Totten trusts and POD accounts are considered testamentary substitutes. This means they are added back into the net estate when a surviving spouse’s elective share is calculated. That share is the greater of $50,000 or one-third of the net estate; the beneficiary of a POD account may need to contribute to it.
Revisit Your Designations After Any Life Change
When you complete a beneficiary designation form, it will remain in your file at your bank. It does not cross your attorney’s desk; it will not attach to your will, and you will not be prompted about it. No life circumstances will result in the document being updated, and the form will not know if your circumstances have changed. As such, whenever you review your estate plan, you should review your beneficiary designations to avoid unintended results.
It’s important to understand that you can name anyone of your choosing to be the beneficiary of a bank account, from a friend or family member to a charity organization.
Contact an Experienced New York Estate Attorney
As you can see, there are several benefits you can reap if you choose to designate a beneficiary for your bank account. Though this process may seem simple, it’s in your best interest to discuss your legal options with an experienced attorney first. At Barrows Levy PLLC, our dedicated team can assist you through the process of exploring your options and completing the necessary forms so you can rest assured that your wishes will be honored upon your passing. When you need help, don’t hesitate to contact our team today.
