When a loved one dies, family members often want to account for their belongings and to make sure any division and distribution of assets is done fairly and legally. It raises the question, how are bank accounts handled after the account holder’s death? Do the funds automatically get transferred to a family member? Who decides?
An experienced estate attorney can dispel the myths about family possessions and untangle the laws around wills and trusts. Knowing how the system works can help you prepare your accounts to avoid confusion and costly delays.
How Bank Accounts and Other Assets are Handled After the Owner Dies
After the primary owner of an account dies, the disposition of the funds depends on two things:
- How the account is owned. If it is a joint tenancy account, the co-owner takes over the account.
- Whether there’s a beneficiary named. A beneficiary can be one or more people who get immediate access to the asset.
Family members do not automatically get access to a person’s bank account when they die. If the account is held only in the name of the deceased, it becomes part of their estate upon death. That means probate court follows state law—or the will left by the deceased–for its distribution.
Steps in probating an estate include:
- Freezing the bank account. The court places a hold on the deceased’s accounts and possessions so that vehicle ownership can’t be transferred and homes cannot be sold until the appropriate paperwork is done to document the assets and follow instructions in the individual’s will.
- Settling taxes and bills. After receiving the appropriate paperwork and appointing an executor approved by the court, bank accounts are used by the executor or administrator of the estate to pay off any taxes, mortgage payments, car payments, or other bills. All funds must be accounted for to the court.
- Intestacy laws. If there is no will the probate court follows intestacy laws to determine how the estate should be divided among the deceased person’s spouse and children, or other relatives. This includes any money remaining from the bank account.
Ways That Account Ownership is Transferred
Family members automatically get access to the bank account of the deceased when the account is held jointly with right of survivorship. That makes the co-owner of the account the default recipient of all of the contents, without the involvement of probate. A death certificate must be filed with the probate court, along with proof of the joint ownership on the account.
But, just because another person’s name is on the account doesn’t mean they receive all of the assets. Some joint account designations are not meant to provide the co-holder with the right to take over the account. Probate court must approve the ownership format and consent to the survivor taking over the account.
There are two forms of beneficiary designations that can be used for bank accounts and other financial assets that streamline the ownership process:
- Payable on Death. This is a mechanism set up with the bank, naming one or more people as recipients of the account upon the owner’s death. This transfer is done outside of probate so the recipient can claim or transfer the funds with a certified death certificate.
- Transfer on Death. This designation applies to specific financial accounts and securities. This designation is handled through the institution that manages the account. A TOD designation bypasses probate, allowing the individual(s) named to immediately access the accounts.
When more than one person is designated as a beneficiary as a result of the account holder’s death, the bank, investment house, or other institution hosting the funds will follow its own procedures to divide and disburse the money.
Getting the Guidance You Need for Probate and Trusts
Establishing an estate plan with a professional like Legacy & Life Law Firm will ensure that accounts pass smoothly to heirs. This approach reduces the emotional and financial strain that families endure upon the death of a loved one. Call for a consultation to confirm that beneficiary designations on your accounts are properly completed and up to date.