What Happens To Bank Accounts After Death?

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

What happens if the sole owner of a bank account passes away?

If the deceased’s account was solely owned, what happens to the account may depend on whether a beneficiary was named, as well as whether legal vehicles have been set up, such as a will and a trust.

Beneficiary: Banks may allow their account holders to designate a payable-on-death (POD) beneficiary, which ensures the money will be made available to the beneficiary upon the account holder’s death. The owner of an account can set this up by filling out and submitting a form provided by the bank. Similarly, investment accounts may allow holders to designate a transfer-on-death (TOD) beneficiary.

“It is important to ensure that those directed beneficiaries are kept up to date as life circumstances change,” says Nicole Rosen, who owns the tax advisory firm Boundless Advisors.

After the account holder’s death, the beneficiary can withdraw the money when they present the death certificate to the bank, along with their own proof of identification.

Executor: If the bank account holder has set up a will, that document designates an executor. Upon the death of the account holder, the executor can access the money in the account and close it only after receiving permission from a probate court. Documents the probate court requires include a certified copy of the death certificate.

Trustee: If the bank account holder established a trust in addition to a will, this could save heirs the time and trouble of going through probate court when it comes to the bank account and other assets. A trustee is named in the trust, and this person manages and distributes the assets according to the deceased’s wishes.

No beneficiary or executor: If the deceased bank account holder didn’t name a beneficiary or set up a will, the fate of the bank account (along with the deceased’s other assets) will be handled through the probate court process. For this, the court appoints an administrator who’s tasked with managing and distributing the deceased’s assets, under the oversight of the court.

What happens to joint accounts when someone dies?

Many joint bank accounts include rights of survivorship, which means that after one account owner dies, any remaining owners retain ownership of the funds in the account, without interruption. If you’re a signer on a joint account, it’s worth checking with your bank to make sure that the account has automatic rights of survivorship.

While rights of survivorship apply to joint account owners, they may not apply to authorized signers. These are people who had permission to access the account, but they don’t own the funds.

When it comes to deposit insurance, the amount of coverage a bank account receives can be impacted by the death of a joint account holder. Joint accounts can receive up to $500,000 in Federal Deposit Insurance Corp. (FDIC) protection, but that amount reverts to $250,000 (the amount afforded for individual accounts) if one of the joint account holders dies.

When a joint account holder passes away, the FDIC continues to insure accounts for up to $500,000 for six months, giving the surviving account holder time to redistribute funds to other accounts to keep them insured.

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

If someone dies without a will, yet they’ve provided their bank with the name of a designated beneficiary, the bank account passes to the named beneficiary. If someone dies without an account beneficiary or a will, it gets more complicated.

In general, the executor of the estate handles any assets the deceased owned, including money in bank accounts. If there’s no will to name an executor, the state appoints an administrator based on local law. The administrator first uses the funds in the account to pay any of the estate’s creditors and then distributes the remaining assets according to local inheritance laws.

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

How do banks discover someone died?

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

Family member

A common way for a bank to discover that an account holder has died is for the family to inform the bank.

When an account holder dies, a relative can contact the person’s bank and determine what information needs to be furnished. This may include a copy of the death certificate and the person’s Social Security number. In addition, you may be able to withdraw the funds and close the account by providing letters testamentary (court documents giving someone legal authority to act on behalf of a deceased person’s estate).

Social Security

On behalf of a deceased individual’s family, funeral directors commonly notify the Social Security Administration when a recipient has died. This ensures no more Social Security checks are issued. Nonetheless, Social Security payments are sometimes sent after a person’s death, and the payment is returned in those cases.

How to avoid complications

One way to ensure a loved one can have access to your bank account when you die is to have a joint account signer or designate a bank account beneficiary. This way, the funds won’t be tied up in probate for any amount of time.

“Always have a will drawn up by an estate attorney and set up beneficiary designations or TOD, but the easiest way to deal with bank accounts is to simply have an authorized signer on the account so they don’t have to wait,” says accountant Eric Nisall, owner of accounting and tax services firm AccountLancer. “They can just go in and take the money or wait and remove the decedent at a later time.”

If you’re the sole owner of one or more accounts, it can pay to make sure you add a beneficiary to each of the accounts, and to provide any beneficiaries with the name of the bank and the account numbers.

“My mom passed away years ago. I was on most of her bank accounts, but when I was cleaning up her estate, I found this one account that she had not named a POD or TOD,” says Boundless Advisors’ Rosen. “The money just sat there in the bank, and the bank started charging inactive account fees. They drained the account.”

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

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

What is a beneficiary?

Naming a beneficiary on your bank account is a dependable way to ensure the money is distributed according to your wishes. A beneficiary is someone you assign to inherit your bank account or other assets. Regardless of whether there’s a will and what’s in the will, the beneficiary typically inherits the designated account’s funds automatically upon the signer’s death.

“There are so many benefits to naming a direct beneficiary on your accounts,” Rosen says. “What that beneficiary has to do is just present a death certificate and ID to the bank. Then that asset will pass directly to who you want it to.”

Banks typically don’t ask account holders to designate a beneficiary. Rather, they must request to add a beneficiary and fill out a beneficiary designation form provided by the bank.

Beneficiary rules

Once an account owner assigns a beneficiary, the beneficiary only has access to the account upon the owner’s death. The account owner may also remove or change who they designate at any time.

Assigning a beneficiary doesn’t override survivorship. In other words, if an account is jointly held between spouses, the surviving spouse still owns the account, and the beneficiary can’t access the funds while another owner is alive. The surviving owner may also change or remove the designated beneficiary.

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

Bottom line

Making a few preparations can save your survivors from financial stress while grieving your loss. To ensure that you know exactly where money is going after you die, designate a beneficiary whenever possible and have a will drawn up by an attorney to outline your final wishes.