top of page

Banks, Beneficiaries and the Best Laid Plans: How Financial Institutions Impact Estate Planning

Updated: 4 days ago

How Financial Institutions Impact Estate Planning in Texas
How Financial Institutions Impact Estate Planning

We want to believe that our financial institutions have our best interests at heart. After all, that’s why we entrust our savings with them month after month, year after year. Too often, though, banks inadvertently throw the most carefully laid estate plans out of alignment. If you are not taking the necessary precautions, your beneficiaries may not receive the assets you intended for them. Here’s how to be mindful of possible planning pitfalls:

Transfer-On-Death Accounts

Over the last few years, transfer-on-death titling has become a popular option with financial institutions. These bank or investment accounts name a beneficiary to receive the account’s assets when the account owner dies. The assets pass immediately at the time of the account holder’s death. While this sounds convenient, there are some drawbacks to be aware of.

For instance, if you list your spouse as your beneficiary and then divorce without updating your beneficiaries on your transfer-on-death account, they may still be eligible to receive your assets when you pass – even if you have written them out of your will. That’s because transfer-on-death accounts pass outside of traditional estate planning.

Even when transfer-on-death assets are passed down to the correct beneficiaries, account owners must consider the source of their estate expenses and tax liabilities. If assets pass through transfer-on-death accounts, there may be no remaining assets to help cover funeral expenses and other administrative costs. Creditors may go after beneficiaries, creating a legal headache for your heirs.

Banking on Beneficiary Designations

When you open an account at your bank, you will likely be asked to list your beneficiaries on a designated card. While this seems like a convenient way to pass on your assets when you die, there are limitations to consider. Beneficiary designations pass by contract, not by will, so you will be limited in your options for passing on assets.

Let’s say you have a blended family. You and your spouse opt to list your children as equal beneficiaries on your bank account. If you pass away in a car accident with your spouse, your children will receive the entirety of your assets, while your partner’s estate gets nothing. That’s because contingent beneficiaries aren’t typically an option offered by financial institutions. Such situations often see beneficiaries inadvertently disinherited – something no family wants to face, especially in the aftermath of a loss.

Banks have all sorts of rules and regulations about beneficiary designations. For instance, a trust cannot be listed as a beneficiary unless it has a current tax ID number. You won’t have such a number if your trust exists within a will. You will also be limited in naming a class as a beneficiary. If you’re hoping to generally list “all my grandkids” as your beneficiary on an account, you will be left disappointed.

Take a Watch-Dog Approach

If you are concerned about your financial institution throwing your estate plans out of alignment, take a proactive approach. Talk with your bank about their policies and procedures surrounding beneficiaries and transfer-on-death accounts. Ask as many clarifying questions as possible about what might happen if you pass away unexpectedly, including:

  1. Can I list more than one beneficiary on my account?

  2. What happens if my beneficiary predeceases me?

  3. Is it possible to update or change my beneficiaries?

  4. Are contingent instructions allowed?

  5. What asset protections are available for my beneficiaries?

Of course, it’s hard to know what specific questions to ask – that is where an experienced estate planning attorney can help. In some cases, you may even want to bring your attorney along with you to meetings at the bank. By understanding the limitations of banks and their common approach to handling beneficiary designations, you will set your family up for the best possible outcome.

Enlist the Help of an Experienced Estate Planning and Probate Attorney

An experienced team of attorneys can help you with your family’s estate plans and probate needs. Whether you are looking to craft estate plans for the first time, need help updating existing plans, or are in need of probate following the death of a loved one, we’re here to help. Call our office today for a consultation at (281) 885-8826.

11 views0 comments


bottom of page