There are many factors that determine what will happen to your bank account when you pass on. Some of these factors may include bank rules, state laws, whether the account is joint solo, whether you put your bank account in a trust, and so on. Following are some scenarios that may help you determine how your account will be dealt with after your death and what you need to do to make sure it happens in the way you would like it to.

If you have a joint account with your spouse, then he or she as the co-owner automatically becomes the sole owner of both the account upon death. The funds left in the account will automatically pass to them when you pass away. Generally, the account will not have to go through probate to be transferred.

If you have an account by yourself and in your own name, then you can designate a payable-on-death beneficiary. A payable-on-death beneficiary is an easy way to leave your bank account to someone. You can do this at your bank, which will provide you with the necessary forms and information. After you die, your beneficiary can show the bank their identification and your death certificate and can then claim any money left in your account. If, however, you do not designate a payable-on-death beneficiary, then your account will likely have to go through probate when you pass away. Probate differs from state to state and may require different steps to settle the estate.

If you have a living trust, then you can hold your bank account in the trust or make the account payable on death or transferrable on death to your trust. After your passing, your successor trustee, as named in your trust, will have the power to control your account and funds once you pass away. Your successor will take over and the funds can be transferred to the beneficiaries you named in the trust.

Some people choose to add a child or family member to their bank account. Although seemingly convenient, adding a non-spouse as a co-owner on a bank account can be problematic for a number of reasons. Most alarmingly, if the new co-owner had a legal or financial problem, the bank account might be in jeopardy. Also problematic is the fact that the account must be declared as an asset of the family member who co-owns the account. This might mean denial of government benefits to the co-owner or even denial of education funds for the co-owners children. An additional issue with adding a non-spouse co-owner to the account and asking the co-owner to distribute money to others is the IRS requirement to report the distributions as “gifts” if they exceed the annual gift tax exclusion.

Planning for your bank account now will save your loved ones further stress when you pass away. Be sure you speak with both your estate planning attorney and your banker on how to best prepare.

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