What is a Beneficiary Account? Here’s Everything You Need to Know

One might think of IRAs, trust funds, mutual funds, and other assets, or even life insurance plans when you hear the term "beneficiary account." Knowing what the term refers to, how beneficiary accounts function, and what they are meant for, can help you use these accounts to the best of your advantage. Let’s dive deep into the meaning and benefits of a beneficiary account. 

What is a beneficiary account?

A beneficiary bank account is a type of savings account in which the funds are transferred to somebody else after the account owner passes away. Beneficiaries play a crucial role not only for life insurance, retirement funds, or big investments, but also for bank accounts. Your beneficiary would be a person(s) who you would wish receives your funds after your demise.

Establishing a beneficiary bank account will keep the funds in your bank account safe from the risk of legal issues when you pass away. If you do not have a beneficiary bank account, your funds may get caught up in probate, which is a legal process that settles whether a will or trust is valid, or who receives your estate if you don't leave a will. If you have a beneficiary account, the funds in that account will be transferred to the beneficiary automatically. This may assist your loved ones in covering funeral expenditure as well as ongoing needs such as rent, loans, and utility costs.

Beneficiaries do not have access to your account while you are alive. They won't be able to take money from your account until you provide them with your debit card and PIN. If your beneficiary faces charges, owes taxes, or falls into serious debt, their creditors cannot access the funds in your account.

IDFC FIRST Bank allows you to easily add a nominee to your savings account, ensuring smooth and secure transfer of funds to your chosen beneficiary. With competitive interest rates  and monthly interest credits, your savings not only stay secure but also grow steadily. Whether you’re opening a new account or updating an existing one, IDFC FIRST Bank offers a seamless process through both its online mode and via the branch.

What is a beneficiary name?

The beneficiary’s name, or the payee’s name, is crucial in banking services. Banks need to confirm the beneficiary’s identity before transferring any funds to their account. When you send money online, you must enter the exact name of the person as it appears in their account. The Bank checks this name to ensure it matches the account owner, preventing mistakes. If there’s an error in the name or details, the transaction could get rejected or get transferred to a wrong account.

Types of beneficiaries in banking services

There are different types of beneficiaries, including:

1. Individual beneficiary:

   This is the most common type, where an authorised person receives money or assets. For instance, family members who conduct informal transactions fall under this category.

2. Trusts as beneficiaries:

   Public and private trusts can also be named as beneficiaries, especially in cases like charitable donations.

3. Joint account beneficiary:

   In a joint account, one account holder can name the other as a beneficiary. This arrangement ensures that in case of a premature loss of one holder, the other receives the funds directly.

Why you should add a beneficiary
 

Adding a beneficiary comes with several advantages like:

1. Accuracy in transactions:

   Having a clearly defined beneficiary ensures accuracy in transactions. Providing details like the beneficiary’s full name, account number, and other bank information helps minimise the chance of funds going to the wrong account.

2. Improved security:

   Adding a beneficiary also enhances security, as only authorised individuals can access or change beneficiary details, reducing the risk of fraud.

3. Easier fund transfers:

   Defining beneficiaries makes it simpler to complete fund transfers, whether they are one-time or recurring payments.

4. Flexibility to update:

   Beneficiary details can be updated as needed, giving account holders the flexibility to adjust information when required.

How can I open a beneficiary account?
 

Customers can easily open a beneficiary account or add a beneficiary designation to a pre-existing account at most financial institutions. To open a bank account online, all you need to do is go to the website of a bank and follow the steps on your screen. You could also open an account by visiting your bank branch and asking your teller to open an account for you. 

However, unlike other sorts of accounts, such as IRAs, you must ask for a beneficiary on a bank account. There is no requirement to name a beneficiary on a bank account unless you choose to do so. As a regular feature on savings accounts, and money market accounts, most financial institutions now provide beneficiary accounts that are "payable on death," or POD accounts.

With IDFC FIRST Bank, you can open a beneficiary-enabled savings account through an entirely online process in just a few clicks or by visiting any branch. Our intuitive platform ensures you can add or update beneficiary details with ease, offering flexibility and convenience.

Documents required to open a beneficiary account
 

Opening a beneficiary account or adding a specified beneficiary to an existing one are simple processes. Request the forms from your bank to designate a beneficiary for your account. Your bank should be able to offer you the right set of forms to fill. Here, you can specify a primary and contingent beneficiary. The beneficiaries do not need to be present and nor do they need to sign any paperwork.

Do I need a living trust if I have a beneficiary account?
 

You may wish to set up a flexible living trust if you have various accounts, investments, and valuables. A living trust assigns all your assets to you and gives you the ultimate authority over them during your lifetime. Following your death, your "successor trustee" would operate on your behalf, transferring assets to your beneficiaries. During your lifetime, you can replace your successor trustee or "revoke" their trusteeship.

Conclusion
 

Establishing a beneficiary account provides security and clarity over your finances, ensuring that your savings reach the right people with ease and without legal complications. Adding a beneficiary to your account or setting up a specific beneficiary account is generally a simple process that can be done online or at your bank’s branch.

IDFC FIRST Bank helps make this process easy and transparent. Along with competitive savings account interest rates and monthly interest credits, you also enjoy features like high transaction limits and complimentary insurance benefits.

For example, the ₹10,000 AMB variant offers a personal accident insurance cover of ₹5 lakhs and air accident insurance cover of ₹30 lakhs. The ₹25,000 AMB variant provides even greater coverage, with a ₹35 lakh personal accident cover and ₹1 crore air accident insurance. Visit the IDFC FIRST Bank website or speak to our relationship managers to open a savings account that’s designed for your goals.