When a loved one dies leaving a bank account, surviving kin may or may not have a legal right to the money, at least immediately. In many cases, the account becomes the property of the deceased’s estate, which means it’s subject to probate. But there are a couple of exceptions to this rule.
The Probate Process
Probate ensures that the deceased’s debts are paid from his estate before the balance of his property is transferred to his beneficiaries. To make this possible, one of the first thing an executor does is open a new bank account in the name of the estate to hold any money that comes in after the deceased’s death, such as his final paycheck. The executor typically closes accounts the deceased held in his sole name and transfer the funds into this estate account. She may need court approval to do so, and she should notify survivors and tell them not to take any money from the accounts if they have access to a checkbook or debit card. But this rule usually applies only to accounts the deceased held in his name alone.
Special Rules for Small Estates
Smaller estates can avoid a full blown, complicated probate process in many states. Depending on the value of what the deceased owned, the estate may be eligible for a simplified probate procedure. In this case, immediate family members may be able to take a court-approved affidavit to the bank to claim the money in the account. Speak with a local attorney to find out if your loved one’s estate is eligible for this kind of probate.
If family members don’t open probate proceedings of any kind, money held in the deceased’s bank accounts can potentially escheat to the state. This means the state can claim the funds, but usually only after a significant period of time has passed and no heirs have taken steps to open probate and claim the money.
Survivorship and Payable-on-Death Accounts
Some people set up their bank accounts with special provisions so the money won’t get tangled up in probate. They create joint accounts with rights of survivorship or with payable-on-death designations. Creating such an account is usually a simple matter of filling out some extra paperwork with the bank. With a payable-on-death designation, the money in the account goes directly to a named beneficiary when the primary account holder dies. The beneficiary has no access to the money until the death of the primary account holder.
Joint accounts, particularly those held by spouses, often transfer directly to the survivor, but this can vary by state law. In some states, this only happens if the account specifically carries a survivorship clause, stating that the money should go to the survivor if one owner dies. If such an account also names a payable-on-death beneficiary, the money doesn’t transfer to that person until the death of the second account holder.
Estate planning offers several options for a bank account might escape probate. If the deceased formed a trust during his lifetime, he may have titled the account in the trust’s name. Because trusts don’t require probate, the account and its money would not be subject to court proceedings. However, survivors still can’t legally access the money on their own. Such accounts are the property of the trust, so the funds would go to the beneficiaries named in the trust documents.