UPDATE: 12/3/2018: Capital One has added an online management system for adding and managing beneficiaries. Please refer to this blog post for more details.
After many years of customer complaints, Capital One has changed its beneficiary policy for 360 deposit accounts. Customers can now designate up to 10 beneficiaries to each account. Once beneficiaries are named, the bank account will be referred to as a "Payable on Death" (POD) account.
Here’s the link to Capital One’s POD beneficiary form. Customers who wish to add individuals as beneficiaries to their 360 accounts must do so by mailing or faxing in this form. The document must be notarized and filled out in its entirety. I was told that they are working to make this a self-service option on the website.
Long before Capital One acquired ING Direct, customers have been unable to designate beneficiaries on their deposit accounts. The only alternative for ING Direct/Capital One 360 customers was to register their accounts as a living trust account. This is a formal revocable trust that is typically set up by an attorney, in which the owner specifies who will receive the trust assets when the owner passes away. This isn’t a good alternative to a POD beneficiary for most people who want a quick and simple way to designate a beneficiary on a bank account.
There are several reasons why you may want to designate account beneficiaries on your bank accounts. First, it can make it much easier on your heirs. When you die, the accounts don’t have to go through the probate process. This can save your heirs time and legal expenses. The beneficiary can claim the account directly at the bank or credit union. Second, it’s an easy way to extend FDIC insurance coverage. As I described in this maximizing FDIC coverage post, it’s easy to insure up to $1.25 million at one bank by using five beneficiaries.
Unfortunately, Capital One’s new beneficiary policy has several issues. First, beneficiaries can only be individuals (no charities, entities or nonprofits). That can make it more difficult if a customer is using beneficiaries to extend FDIC coverage. Not everyone may have enough family or friends who they want to be beneficiaries. Also, there is more risk in the amount of FDIC insurance coverage when a beneficiary is an individual. If that person dies, you lose the extra FDIC coverage immediately. There’s no grace period.
The second issue with the new beneficiary policy is that Capital One requires that you specify the beneficiary’s US Tax ID (social security number or ITIN). Many people don’t want to know the social security numbers of their beneficiaries. They may not be close family members, and they may not want beneficiaries to know. Also, every time a social security number is given to another person or entity, the risk of identity theft increases. That’s one reason why institutions should only request a social security number when it’s absolutely necessary, and it’s not necessary for banks to know your beneficiaries’ social security numbers when you’re still alive.
The third issue with the new beneficiary policy is that customers must designate a beneficiary by using a paper form that must be notarized and then mailed or faxed back to Capital One. That’s a lot of work and time. However, this should only be temporary. As I mentioned above, I was told that they are working on a beneficiary management system for customers that will be available on Capital One’s website later this year.
Other internet banks have made it easy for many years to designate multiple beneficiaries. For example, Ally Bank has allowed up to 10 beneficiaries per account, and the beneficiaries can be a person or entity. No beneficiary social security number is required. Also, the beneficiary designations can all be done online on Ally’s website.
Capital One’s new beneficiary policy is a step in the right direction, but more improvements are needed.