Estate Planning Must
Estate Planning Must: Name Beneficiaries on all Your Accounts
An important step of estate planning is to designate beneficiaries: the person or entity who will receive part of your estate upon your death. A beneficiary can be named on a will, trust or through an agreement with your bank, financial institution or life insurance company. This is called a “Payable on Death” or “POD” beneficiary or “Transfer on Death” beneficiary.
Please remember that if you designate a beneficiary on a commercial bank account or investment bank account or insurance policy, then the assets or proceeds of that account or policy will pass directly to the named beneficiary, probate-free, after your death. This means that the designation of beneficiary on an account or policy supersedes your wishes on your will and there will be no need to probate your will in Surrogate Court in order for the beneficiary to access these funds upon your death. This person will have immediate access to the account. However, if you name your “estate” as your beneficiary or do not have a beneficiary named in your accounts, the proceeds of these accounts will only be distributed after your will has been probated in Surrogate Court. If you die without a will, an administrator will have to be appointed by the Surrogate Court to grant access those funds.
At the same time, other beneficiaries in your will who are not named beneficiaries on these accounts will not have access to these funds. They will pass directly to the person or persons named as beneficiaries in the account.
It is also important to keep copies of all your accounts information and of the beneficiary designations together with all your estate documents and to ensure that these forms are up to date. Many times, we keep a checking and savings account for many years and there may be no beneficiary designation or the person named is no longer in your life or may have passed away.
Some banks allow an account to have more than one beneficiary. The proceeds will be distributed equally upon your death. This is different from having a joint account, where both account holders have access to the funds at all times and creditors of both account holders can access these funds.
It is also important to distinguish a joint account holder with an agent holding a power of attorney. A "Durable" Power of Attorney enables your agent to act on your behalf as soon as it is signed, even if you as the principal may become incompetent or unable to make financial decisions. This power of attorney is effective until it is revoked by you as the Principal, or until your death or when the agent can no longer act or resigns.
Although the power of attorney form approved by the State of New York shall be accepted by all institutions, many banks require you to complete their own power of attorney form or need their legal review prior to account acknowledgement and you may wish to inquire with your bank if that is the case.
On 15 December, 2020, the Governor of the State of New York signed into law changes to the Power of Attorney law that will become effective in June 2021. This new law will not impact a previously signed power of attorney but a new form will be issued and damages could be awarded by a Court if rejection of the power of attorney by a bank was unreasonable.
It is not advisable to name a disabled person or a child under 18 as a beneficiary in a bank or investment account. There are better mechanisms to provide for children or relatives with special needs that you can discuss with your estate attorney.
Even if you believe all your accounts and policies have named beneficiaries, double check. Triple check. Check once a year. Do everything you can to make sure you don’t make the mistake of forgetting to name a beneficiary.