When someone passes away, one of the first questions a Personal Representative may have is:
Which bank accounts are part of the probate estate, and which ones are not?
The answer often depends on how each account is titled and whether a beneficiary designation is attached to the account. This can be confusing, especially when a family assumes that everything the person owned will be divided according to the Will.
But that is not always how it works.
Some bank accounts may pass directly to a named beneficiary and never become part of the probate estate. Understanding the difference can help Personal Representatives identify the assets they need to administer and avoid unnecessary confusion along the way.
What Is a Beneficiary Designation?
A beneficiary designation is an instruction that tells a financial institution who should receive an account after the account owner dies. For example, a bank account may have a Payable on Death (POD) designation.
The account owner remains in control of the money during their lifetime. But when they pass away, the funds can generally be transferred directly to the person named as the beneficiary after the bank receives the required documentation. Because the account passes by beneficiary designation, it generally does not pass through the probate estate.
What Does That Mean for the Will?
This is where things can get confusing.
A Will generally controls assets that are part of the probate estate. But a beneficiary designation can control certain assets separately. For example, imagine someone has a Will stating that their three children should divide their estate equally. That person also has a bank account with a Payable on Death designation naming only one of the children.
When that person dies, the bank account may pass directly to the named child rather than being divided equally among the three children through probate. The result may be very different from what the family expected. This is why beneficiary designations are such an important part of estate planning.
Which Bank Accounts Are Part of Probate?
Not every bank account has a beneficiary designation.
An account owned solely by the person who passed away, without a valid beneficiary designation or another method of passing outside probate, will generally be part of the probate estate. These assets are then administered by the Personal Representative as part of the probate process. The Personal Representative may need to:
- Identify the account
- Provide the bank with the appropriate probate documentation
- Transfer or manage the funds through the estate
- Use estate funds to pay appropriate debts and expenses
- Distribute the remaining funds according to the Will
This is why reviewing every account carefully is so important.
You cannot determine whether an account is a probate asset simply by looking at the bank name or account type. You need to understand how the account is actually titled and whether a beneficiary designation exists.
What If the Beneficiary Designation Is Outdated?
Beneficiary designations can create problems when they are old or no longer reflect the person’s wishes. For example, someone may have named a former spouse as the beneficiary years ago and simply forgotten to update the account after a divorce. Or perhaps the named beneficiary passed away before the account owner and the designation was never updated.
In these situations, the account may not transfer in the way the family expects. The financial institution may require additional documentation, or the account may need to be handled through the probate process depending on the circumstances and the terms of the account.
This is why beneficiary designations should be reviewed periodically. Creating an estate plan is not enough if the accounts outside of the probate estate do not coordinate with the overall plan.
What If the Beneficiary and the Will Do Not Match?
This is another common source of confusion.
A person may believe their Will controls all of their assets, but certain accounts may pass according to a beneficiary designation instead. If the beneficiary designation and the Will do not match, the result may not be what the person intended. For example, someone may update their Will to leave an account equally to their children but forget to update the beneficiary designation on the account. The beneficiary designation may still control how that account passes.
This is why reviewing your estate plan should include more than simply reviewing your legal documents. Your financial accounts should also be reviewed to make sure they are coordinated with your overall plan.
What Should a Personal Representative Do?
If you are serving as Personal Representative, one of the first things you should do is create a complete inventory of the person’s financial accounts. Do not assume that every account is part of probate. Instead, determine:
- What type of account it is
- How the account is titled
- Whether there is a beneficiary designation
- Who is listed as the beneficiary
- Whether the beneficiary is still living
- What documentation the financial institution requires
This information will help you determine which assets need to be administered through probate and which may pass directly to beneficiaries. It can also help you communicate more clearly with family members about what is happening with the estate.
Beneficiary Designations Can Simplify Things, But They Can Also Create Questions
Beneficiary designations can make transferring certain assets much simpler.
Instead of requiring the account to go through probate, the funds may pass directly to the person named on the account. But simplicity only works when the designation is valid, current, and consistent with the person’s wishes. Outdated or incomplete beneficiary designations can create confusion and, in some cases, disputes.
That is why these designations should not be overlooked. They are an important part of the bigger estate planning picture.
The Bottom Line
When administering an estate, do not assume that everything the person owned is automatically part of probate.
Some assets pass through the probate process. Others may pass directly to a beneficiary. Knowing the difference is an important part of a Personal Representative’s job. For families, it can also be a valuable estate planning lesson: your Will is only one piece of the puzzle. Your account ownership and beneficiary designations should work together with your overall estate plan.
Need a Roadmap for Probate?
If you are serving as a Personal Representative, figuring out which assets are part of probate can feel complicated. You may have bank accounts, retirement accounts, real estate, insurance policies, and other assets, all with different rules for how they transfer after death.
Welcome To Probate was created to help Washington Personal Representatives understand these issues and navigate an uncontested probate with a Will.
The course breaks the probate process down into manageable steps, helping you understand your responsibilities, identify the assets you need to address, and move through the process with greater confidence.
Serving as a Personal Representative does not have to feel intimidating. With the right roadmap and guidance, probate can become a much more manageable, step-by-step process. Sign up for the “Welcome to Probate” waitlist today to grab your probate roadmap! Welcome to Probate! The course opens soon!