2 Reasons You Should Name a Beneficiary for Your Bank Accounts

Think of it as good financial hygiene.

Your guardian passes away, leaving you to clean up their finances. You want nothing more than to get this over with, but their bank refuses to pass you the money. No beneficiary is named to your guardian's bank account!

Now, bureaucratic hoops stand between you and their inheritance. If your guardian failed to write a will and designate you as a beneficiary, you'll end up at the mercy of local inheritance laws, further drawing out the process.

You may even inherit less than expected.

Yikes. Nobody wants to ensnare their grieving loved ones in a tangled web of death certificates and state inheritance laws. Naming a beneficiary to your bank account simplifies the transfer of money.

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On her Women and Money podcast, financial guru Suze Orman recently gave two compelling reasons to name a beneficiary to your bank accounts: to make sure your money is correctly distributed and to bring closure to loved ones.

1. Ensure your money is correctly distributed

Name a beneficiary to make sure your bank correctly distributes your inheritance. Generally speaking, this is what happens to a bank account when someone dies:

1. The bank transfers the owner's money to their named beneficiary.
2. If no beneficiary is found, the money is allocated according to the owner's will.
3. If no beneficiary is designated in the will, funds are distributed according to state inheritance laws.

Orman recommends naming a beneficiary to stop this process from progressing past step one. It makes transferring money as simple as presenting the owner's bank with proof of death (typically with a certified death certificate, so have one handy when claiming inheritance).

2. Bring closure to loved ones

Death is hard. Losing a loved one hurts. Orman cautions against going through intestate succession, which can get messy. For example, the state might split account funds between the children of the deceased and cause unnecessary hardship.

If nothing else, consider naming a beneficiary to bring solace to those you leave behind. Clarity can bring closure to the living.

Orman recommends that folks struggling with complicated inheritance planning hire a lawyer to guide them through it. A legal representative can ease a stressful process. But the best thing to do is to name bank account beneficiaries through a Payable on Death (POD) account.

How do you name a beneficiary?

To designate who inherits your bank accounts, set your accounts to Payable on Death and name at least one beneficiary. You can do this by contacting your banks. Some banks allow you to designate beneficiaries through your online account.

Orman recommends you name beneficiaries to your other financial accounts:

• Life insurance beneficiaries receive death benefits.
• Brokerage account beneficiaries inherit investments.

You can contact them to ensure you've designated beneficiaries and that they're up to date. Consider making a last will and testament, which functions as a catch-all you can use to designate beneficiaries of forgotten accounts.

Practice sound financial hygiene by following these additional tips:

• Consolidate your accounts to make claiming money even easier for beneficiaries.
• List your financial accounts, including brokerage accounts and insurance policies.

Keep the transfer of wealth clean by naming beneficiaries to your bank accounts, including checking and high-yield savings accounts. Your inheritors will thank you for it. Plus, you'll earn peace of mind, having done everything possible to bring your loved ones closure.