What happens to bank accounts after death?

The old saying goes, “You can’t take it with you,” but the question remains: what happens to the bank accounts you leave behind? The answer depends on a few factors, including whether the account is a joint account, whether there is a will, and whether a beneficiary is named. For loved ones of the deceased, here are some circumstances to consider and what to do when an account holder dies.

What happens if the sole owner of an account dies?

If someone is the sole owner of a bank account, it is important to know if someone is appointed to inherit funds from the account.

Many banks allow their customers to name a beneficiary, which is sometimes called a payable on death or transferable on death account. If the account holder has named someone as a beneficiary, the bank releases the funds to the designated person once they learn of the account holder’s death. After that, the financial institution usually closes the account.

If the account owner has not named a beneficiary, the process may be more complicated. The executor, who administers the deceased person’s estate, becomes responsible for using the money to repay creditors and distributing the remaining funds according to the will be.

What happens to joint accounts when someone dies?

Most joint bank accounts include automatic rights of survivorship, which means that after a signer on the account dies, the remaining signer(s) retain ownership of the money in the account. The surviving primary account holder may continue to use the account and the money in it, without any interruption.

If the sole surviving holder of the joint account is a secondary holder, the account will be need to be closed. The secondary account holder may be able to withdraw funds from the account during the settlement process.

The death of an account holder may affect the amount of insurance on the account. The Federal Deposit Insurance Corp. continues to insure accounts for six months after an account holder dies, allowing the surviving account holder to redistribute funds to other accounts to keep them insured. After the period expires, FDIC coverage ends. Joint accounts can receive up to $500,000 of protection, but this amount reverts to $250,000 of protection applicable to individual accounts if one of the joint account holders dies.

However, if you’re a signatory to a joint account, it’s worth checking with your bank to make sure the account has automatic rights of survivorship. Some banks freeze joint accounts after the death of one of the signatories, which could affect a survivor’s ability to access the funds.

What happens to a bank account when someone dies without a will?

If someone dies without a will, the bank account always passes to the named beneficiary for the account. If someone dies without a will and without naming a beneficiary, it gets complicated.

Generally, the executor manages all the assets the deceased owned, including money in bank accounts. If there is no will to appoint an executor, the state appoints one based on local law. The executor first uses the funds in the account to pay one of the estate’s creditors, then distributes the money according to local inheritance laws.

In most states, most or all of the money goes to the spouse and children of the deceased.

How do banks find out that a person has died?

Banks need to know when an account holder dies so accounts can be quickly closed and funds distributed.

Member of the family

A common way for a bank to find out that an account holder is deceased is for the family to notify the bank.

When an account holder dies, notify the deceased’s bank with a copy of the death certificate, social security number, and any other court-provided documents, such as letters testamentary (court documents giving someone legal authority to act on behalf of the deceased estate) given to the executor. The bank can then close the account.

Social Security

Funeral directors regularly notify the Social Security Administration of a beneficiary’s death on behalf of the family, ensuring that no further Social Security checks are issued. However, Social Security payments are sometimes sent after a person dies and the payment must be returned. The return of the check obliges Social Security to contact the bank that received the payment. Receiving this request from Social Security is another way for the bank to find out if an account holder is deceased.

How to avoid complications

There are steps you can take to help your heirs avoid complications when you die. Having an account co-signer is a reliable way to make the process of transferring funds to someone else easier.

“Always have a will written by an estate attorney and set up beneficiary designations or TODs, but the easiest way to manage bank accounts is to simply have an authorized signer on the account so they don’t have to. to wait”, explains the accountant. Eric Nisall, owner of AccountLancer and who has experience managing the accounts of a deceased relative. “They can just walk in and take the money or wait and remove the deceased later.”

If you have power of attorney for someone in poor health, you have the ability to make certain decisions on their behalf and can add a joint account holder or TOD to their accounts for the future. Another way to prepare survivors is to notify them of all your accounts and add beneficiaries through the bank if the account is not jointly owned. Survivors may not have access to money from these disregarded accounts.

“My mother passed away about 10 years ago. I was on most of her bank accounts, but when I was cleaning up her estate, I found this account that she hadn’t named POD or TOD,” says Nicole Rosen, owner of tax consultancy Boundless Advisors. “The money sat there in the bank, and the bank started charging an inactive account fee. They emptied the account.

One possible way to prevent accounts from being forgotten is to consolidate them, leaving fewer accounts for your heirs to find.

If you’re trying to find accounts left behind by a parent or spouse, try checking your state’s unclaimed money database. Banks must return unused accounts to the state after a period set by local law. The state then lists this unclaimed money for the original owners to find before escheating it – transferring it to the state – for public use.

What is a beneficiary?

name a beneficiary on your accounts is one of the most reliable ways to ensure that the money is distributed according to your wishes. A beneficiary is someone you designate as the heir to particular assets, including bank accounts. Regardless of whether or not a Will exists and the contents of the Will, the Beneficiary automatically inherits funds from the Designated Account upon the death of the Signatory.

“There are so many benefits to naming a direct beneficiary on your accounts,” Rosen says. “That beneficiary simply needs to present a death certificate and ID to the bank. Then that asset will pass directly to whoever you want it to.

Banks generally do not require account holders to designate a beneficiary. Instead, they must request the addition of a beneficiary and complete a beneficiary designation form provided by the bank.

Beneficiary rules

Once an account holder assigns a beneficiary, the beneficiary only has access to the account upon the death of the holder. The account holder can also delete or modify the person he designates at any time.

Beneficiary attribution is not a substitute for survival. In other words, if an account is jointly owned by spouses, the surviving spouse still owns the account and the beneficiary cannot access the funds while another owner is alive. The surviving owner can also change or remove the designated beneficiary.

If the beneficiary is a minor when the account holder dies, someone must be appointed to manage the money on behalf of the minor.

At the end of the line

Making some preparations can save your survivors from financial stress while mourning your loss. To make sure you know exactly where the money goes after you die, name a beneficiary whenever possible and have a lawyer write a will to set out your last wishes.

–Freelance writer TJ Porter contributed to an earlier version of this article.

Shawanda H. Saldana