Banking and Finance
Keeping your money safe and accounted for is important as you head into your retirement. You will be living on the savings from your years of work and probably from some form of government payments. Know how to handle this money and what to do with it in the event of your death.
I am concerned about what will happen to my bank account after I pass away. Which type of account is best for my situation?
Your bank account may pass under your will or not, depending on the type of bank account you have.
TIP: Different states have different rules. Be sure to check with your bank.
There are several different ways you can hold your bank account, and each will affect how the funds pass after your death:
- Joint Account. This is a bank account in two or more names. You own the portion that you contribute. The biggest drawback is that any named account holder can withdraw all the money in the account-even if he or she did not contribute all the money. At your death, the money in the account that can be attributed to your contributions passes under the terms of your will. If you do not have a will, state law will determine who receives your property, including the money in your bank accounts. These laws generally favor your surviving spouse and children.
- Tenants in Common. This is also a bank account in two or more names, and again, you own only that portion that you contribute. As with a joint account, any named account holder can withdraw all the money in the account–even if he or she did not contribute all the money. At your death, the money in the account that can be attributed to your contributions passes under the terms of your will. If you do not have a will, state law will determine who receives your property, including the money in your bank accounts. These laws generally favor your surviving spouse and children.
- Joint Tenancy. This type of account passes the same as a joint account.
- Joint Tenants With Rights of Survivorship. This type of account does not pass through your will. You can establish the account with two or more people. When the account is opened, you must sign a survivorship agreement, which allows the survivor or survivors to take all the money in the account at the death of one of the joint tenants.
- Payable on Death (POD) Account. In this type of account, the money is payable to you during your lifetime, but funds in your bank account at your death are paid to someone else. In this case, the money does not pass through your will, but instead goes directly to the person you designate. You must designate this person when opening the account.
- Trust Account. This is much like a POD account, except that you are the trustee of the money in the account and you hold the money in trust for designated beneficiaries. The trust can only hold the money in the trust account. During your lifetime, the money belongs to you as trustee. At your death, the money passes to your designated beneficiary or beneficiaries.
TIP: Most people go to the bank to open a checking or savings account without much thought as to how the money is distributed at death. It is important to know which type you are opening when you sign the signature card at the bank. If you do not know which type of account you have, check with your bank. They should be able to quickly tell you-and help you change your account to one that may better suit your overall estate plan.
Who can open my safe-deposit box after I die?
If you open a safe-deposit box with your spouse, you most likely opened it jointly. This means your surviving spouse has the right to open the safe-deposit box and remove any or all of its contents. If the safe-deposit box is held in your name only, state laws vary. Some states allow spouses, parents, adult children and executors access to your safe-deposit box after your death if they provide proper identification of their relationship. In other states, your safe-deposit box is "sealed" and your will and other important documents (life insurance and deeds) cannot be removed without a court order. This takes time and money.
TIP: Be sure to ask your bank representative what the law is in your state. If your safe-deposit box will be sealed in the event of your death, consider opening a safe-deposit box jointly with your spouse or other trusted family member and make sure your attorney has an original, signed copy of your will.
My bank is cutting back on all its services. Are there any banking programs addressing the problems of seniors?
While some banks are cutting back on services, many realize that seniors make up a large percentage of their customers and are updating services to help them. This may include accounts specifically designed for seniors with higher interest rates for larger accounts. They also may be able to give you one monthly statement that includes your checking and savings accounts, your retirement accounts and mortgage information.
Larger banks will often offer asset management services. These may include professionally managed investment services and trust services, including helping to create living trusts and serving as estate executors.
Some banks offer newsletters with specific community information relating to seniors. Banks often host seminars on financial issues relevant to seniors. Contact several of your local banks to see if they have any of these services.
I am ill and need money now. My friend said to get a "viatical settlement" on my life insurance. Can you explain what that is?
A viatical settlement occurs when you sell the rights to your life insurance to a company. They pay you a lump sump amount that represents the payout of your life insurance policy, usually a percentage of your policy's face value. This can be anywhere from 50 percent to 75 percent of the policy's value. The purchasing company then pays the premiums on the policy, and when you die, the proceeds are paid to that company. Many elderly people with a terminal illness and large medical bills may find that a viatical settlement agreement offers a way to pay for their medical costs. But these are not without risk-there are both legal and tax consequences, including affecting your participation in public assistance programs such as Supplemental Social Security and Medicaid.
SIDEBAR: You can change you mind anywhere from 15 to 30 days after you receive the money, depending on your state, by giving the purchaser of your life insurance policy written notice.
TIP: Viatical settlements are not the only answer. Consider contacting your life insurance company to see if they will allow you to surrender the policy for its cash value. Or they may offer accelerated death benefits or offer loans against the policy amount. Also, if your policy covers other family members such as your spouse, be sure that you are not surrendering that portion of the policy. As with any financial decision, check with several companies to compare prices and contracts and do not let any company pressure you into a contract. Call the Better Business Bureau to find out more about the companies you contact. State insurance commissioners also should have information about companies that purchase insurance policies.
What are "subprime loans" and "predatory loans"?
Unfortunately, many elderly Americans are targets for unscrupulous financial institutions. These lenders will target elderly homeowners needing money to pay real estate taxes, make needed home repairs or who may have less than perfect credit histories.
Subprime loans are generally extended to consumers with low incomes and flawed credit history. These loans are not themselves illegal. But they do become illegal, predatory loans when vulnerable consumers, such as the elderly, are the subject of aggressive sales techniques. This may include exorbitant fees and interest rates and the use of misleading and fraudulent sales pitches. Lenders may even try to get you to "flip" a loan-that is, encourage you to pay off an existing loan with a second, more expensive loan. Each time you flip a loan, you have to pay costs and fees associated with the loan-more money out of your pocket and into the lender's.
People claiming to be creditors are contacting me both by phone and mail. Is this legal?
Unfortunately some debt collectors use abusive and deceptive practices to try to recover debt. To help stop this, the government has passed the Fair Debt Collection Practices Act. Most states also have state laws forbidding this practice. Most basically, debt collectors cannot contact you before 8 a.m. and after 9 p.m. or at your place of business if the collector has reason to know that your employer forbids such communication. You can notify the collector in writing that you refuse to pay the debt and to stop further contact. In this case, they can only contact you to let you know of their specific remedies being sought.
SIDEBAR: The Act specifically forbids the collectors from making false or misleading representations, from threatening you or using profanity.