13 Apr 7 Ways To Set Up An Account In Texas – Your Beneficiary May Not Be As You Intended
There is often confusion as to who is the beneficiary of a bank account when an owner of the account dies.
The type of account selected on a signature card determines how the account passes at death. Texas has a law on the seven (7) types of accounts that can be established at a bank or other financial institution as follows:
1. Single-Party Account Without “P.O.D.” (payable on death).
On the death of the owner of the account, ownership of the account would pass by the owner’s will. If the owner of the account did not have a will, it would pass to his or her heirs under Texas law typically determined by a time-consuming heirship determination or by a Small Estate’s Affidavit that would need court approval (if the non-homestead assets to be transferred are less than $75,000). Even if the account is not a convenience account, the account owner can appoint a convenience signer to make transactions during the lifetime of the owner. The designated convenience signer would only be an owner at death if also designated as a P.O.D. payee or trust account beneficiary.
2. Single-Party Account With P.O.D. Designation.
On the death of the owner of the account, ownership passes to the P.O.D. beneficiaries of the account. This supersedes a will so it would not be a part of the probate estate of the deceased. Typically the financial institution would simply require a death certificate. A convenience signer could also be added on this account.
3. Multi-Party Account Without Right of Survivorship.
This is the type of account that causes the most confusion. A joint account owner is not automatically entitled to all of the account assets of the deceased joint owner. The parties to the account own in proportion to the party or parties net contributions to the account. On the death of a party, the party’s ownership of the account passes as a part of the deceased party’s estate under the deceased party’s will or by intestacy (heirs at law – if there is no will). An attorney for the deceased party’s estate may notify the financial institution of the rights of others or get a court order to determine the contribution of the deceased joint account owner.
4. Multi-Party Account With Right of Survivorship.
The parties to the account own the account in proportion to the parties’ net contributions to the account. The financial institution may pay any sum in the account to a party at any time. On the death of a party, the party’s ownership passes to the surviving parties. There can also be a convenience signer.
5. Multi-Party Account With Right of Survivorship and P.O.D. Designation.
Similar to 4 above, as the parties to the account own the account in proportion to the parties’ net contributions to the account. The financial institution may pay any sum to a party at any time. On the death of the last surviving party, the ownership of the account passes to the P.O.D. beneficiaries (and not by will or intestacy). Paid on death beneficiaries would typically provide death certificates of the deceased owners.
6. Convenience Account.
The parties to the account (not the convenience signer) own the account. One or more convenience signers may make account transactions. On the death of the last surviving party, ownership passes as part of the last surviving party’s will or intestacy. The financial institution may pay funds in the account to a convenience signer before the financial institution receives notice of the death of the last surviving party (owner) although the payment does not affect ownership of the account.
7. Trust Account.
The parties named as trustees to the account own the account in proportion to the parties’ net contributions to the account. Any trustee (not the beneficiary) may withdraw funds at any time. On the death of the last surviving trustee, ownership of the account passes to the beneficiary. The trust account is not part of the trustee’s estate and does not pass under the trustee’s will or intestacy unless a trustee survives all of the beneficiaries and all other trustees. Also, there is more federal insurance in the event of a bank’s bankruptcy with this type of account (not limited to $250,000).
Signature cards and account agreements should be considered in estate planning. Financial institutions may use language that is not identical to state law so the signature cards and account agreements should be reviewed in connection with estate planning.
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