Are Your Savings Accounts Ready to Be Passed On?

Estate Planning Yet Savings

What happens to the money in your savings accounts when you pass on? Making sure those funds go where you intend is an important part of estate planning, yet savings accounts can be easy to overlook.

Without the right designations, your savings could end up going through probate, potentially delaying when your heirs can access the money. That could leave your family paying out of pocket for expenses you intended those savings to cover, such as final expenses. A new survey conducted by Morning Consult on behalf of Kiplinger found that just 36% of parents have designated beneficiaries on retirement accounts or life insurance policies, highlighting how easy this relatively simple estate-planning step can be to overlook.

Common Pitfalls Streamline

Here's how to avoid these common pitfalls, streamline the transfer and protect your financial legacy.

What happens if you don't name a beneficiary

Individually Owned Savings Account

If you die without naming a beneficiary on an individually owned savings account, the money may become part of your estate and have to go through probate. Once the bank learns of your death, it may restrict access to the account until the person legally authorized to handle your estate can take control of the funds.

Who ultimately inherits the money will depend on your estate plan and state law. If you have a will, the funds generally become part of the estate distributed according to its terms. If you die without a will, known as dying intestate, state law determines which relatives inherit your assets.

Terrible Horrible

Read more: Probate: The Terrible, Horrible, No Good, Very Bad Side of Estate Planning

If you already have a trust as part of your estate plan, naming the trust as the beneficiary may be one option. Danny Beckwith, a certified financial planner and financial adviser at First Financial Consulting, told Kiplinger, "Name the trust as your beneficiary. It will make it a lot easier to work with the banks."

Death Beckwith Suggests Reviewing

Even if you've already named beneficiaries, it's important to review your designations periodically, particularly after major life changes such as a marriage, divorce, birth or death. Beckwith suggests reviewing beneficiaries every other year.

"You wouldn't believe how many mistakes happen, and by clarifying, you're providing peace of mind that your legacy will go on as you intended," he says.

Savings Account Avoid Probate

But you don't necessarily need a trust to help your savings account avoid probate. Another option is to name a payable-on-death beneficiary.

How to designate someone as a payable-on-death beneficiary

Payable-on-death POD Beneficiary

Another option is to add a payable-on-death (POD) beneficiary to your savings account. After you die, the funds generally pass directly to the named beneficiary without going through probate. The beneficiary will need to contact the bank and provide the documentation it requires, typically including identification and a certified copy of the death certificate.

To add a POD beneficiary to your savings account:

Payable-on-death Beneficiary

Contact your bank and ask how to add a payable-on-death beneficiary.

Provide the beneficiary information the bank requires, which may include their full legal name, date of birth, address and Social Security number.

You're Naming Multiple Beneficiaries

If you're naming multiple beneficiaries, specify how you want the funds divided among them, often using percentages.

Complete and submit the required paperwork. Depending on the bank, some documents may need to be notarized.

Avoiding Probate Doesn't Necessarily

Keep in mind that avoiding probate doesn't necessarily eliminate potential tax considerations. Depending on where you live and the size of your estate, state estate or inheritance taxes could still apply.

What your family should know

Clarity Beckwith Recommends

The most helpful gift you can leave your heirs is clarity. Beckwith recommends, "I am a huge fan of parents letting their children know where everything is and what they will receive. Where we see the biggest problems is that the kids don't know what they're inheriting; it can be daunting to find where everything