What happens to a bank account after a person dies?

"You can't take it with you," as the old adage goes, yet it begs the question: what happens to the financial accounts you leave behind? The answer is dependent on several criteria, including if the account is joint, if there is a will, and if a beneficiary is named. Here are some considerations for individuals close to the deceased, as well as what to do when an account holder dies.

What happens if the single owner of a bank account dies?

If the deceased's account was wholly owned, what happens to the account is determined by whether someone was named to inherit it.

Many banks allow their customers to name a beneficiary for a payable on death (POD) or transferred on death (TOD) account. If the account holder named someone as a beneficiary, the bank transfers the funds to the named person upon learning of the account holder's death. Following that, the financial institution normally shuts the account.

If the account owner did not name a beneficiary, the process may be more complicated. The executor, who administers the deceased's estate, is responsible for repaying creditors and sharing the leftover monies according to the deceased's will.

What happens to joint accounts when someone dies?

Most joint bank accounts feature automatic rights of survivorship, which implies that if one account signer dies, the surviving signer (or signers) retains ownership of the money in the account. The surviving primary account owner can continue to use the account and the money in it without interruption.

If the only surviving joint account holder is a secondary account holder, the account must be closed. The secondary account holder may be allowed to withdraw funds from the account throughout the settlement procedure.

The death of an account holder can have an impact on how much the account is insured for. The Federal Deposit Insurance Corp. continues to protect accounts for six months after an account person dies, allowing the surviving account holder to move cash to other accounts to keep them insured. When the period expires, FDIC coverage ceases. Joint accounts can receive up to $500,000 in protection; however that sum is reduced to $250,000 in protection for individual accounts if one of the joint account holders dies.

Still, if you're a signer on a joint account, verify with your bank to ensure that the account includes automatic rights of survivorship. Some banks lock joint accounts after one of the signers dies, limiting the ability of a live account owner to access funds.

What happens to a bank account when a person passes away without leaving a will?

If a person dies without a will, the bank account will still pass to the named beneficiary. It becomes more problematic if someone dies without a will or without naming a beneficiary.

In general, the executor of the estate is responsible for all assets possessed by the dead, including money in bank accounts. If no executor is named in the will, the state picks one depending on local law. The executor first pays any creditors of the estate and then distributes the money in accordance with local inheritance laws.

In most states, the money is distributed to the deceased's spouse and children.

How do banks find out whether someone has died?

Banks must be notified when an account holder dies so that accounts can be terminated and funds dispersed as soon as possible.

Family member

A usual approach for a bank to learn of the death of an account holder is for the family to notify the bank.

When an account holder dies, notify the deceased's bank by bringing a copy of the death certificate, Social Security number, and any other court documents, such as letters testamentary (court documents that provide someone legal authority to act on behalf of a deceased person's estate). The account can then be closed by the bank.

Social Security benefits

Funeral directors commonly notify the Social Security Administration on behalf of the family of a recipient's death, ensuring that no further Social Security checks are issued. Nonetheless, Social Security payments are sometimes made after a person's death and must be returned. Returning the cheque necessitates contacting the bank that received the payment. Receiving that request from Social Security is another means for the bank to determine whether or not an account holder died.

How to avoid complications

You can take some actions to make it easier to cancel your account and disperse its funds when you die. Having a dual account signer is a dependable technique to simplify the procedure of transferring funds to someone else

"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 Account Lancer owner Eric Nisall, who has experience handling the accounts of a deceased relative. "They can just go in and take the money, or they can wait and remove the decedent at a later time."

If you have power of attorney for someone who is ill, you can make choices on their behalf and add a joint account holder or a TOD to their accounts in preparation for the future. Another option to prepare survivors is to notify them of all of your accounts and, if the account is not jointly owned, add beneficiaries through the bank. Survivors may not have access to the funds in those accounts that are not considered.

Consolidating accounts may help prevent them from being forgotten, leaving fewer accounts for your heirs to track for.

Check your state's unclaimed money database if you're looking for accounts left behind by a relative or spouse. Banks are required by local legislation to return unused accounts to the state after a certain amount of time. The state then posts that unclaimed money for the original owners to locate before escheating (transferring it to the state) it for public use.

What exactly is a beneficiary?

One of the most dependable ways to ensure that money is paid according to your intentions is to name a beneficiary on your accounts. A beneficiary is someone you name as the inheritor of specific assets, such as bank accounts. Regardless of whether a will exists or what it contains, the beneficiary automatically inherits the funds in the designated account following the death of the signer.

"There are so many benefits to naming a direct beneficiary on your accounts," adds Rosen. "All that beneficiary has to do is show the bank a death certificate and ID." The asset will then be transferred immediately to whomever you specify."

Banks normally do not require account holders to name a beneficiary. Instead, they must request that a beneficiary be added and complete a beneficiary designation form issued by the bank.

Beneficiary regulations

When an account owner names a beneficiary, the beneficiary has access to the account only when the owner dies. At any moment, the account owner may delete or update who they select.

The designation of a beneficiary has no effect on survivorship. In other words, if a joint account is held by spouses, the surviving spouse retains ownership, and the beneficiary cannot access the cash while another owner is still living. The designated beneficiary may also be changed or removed by the living owner.

When the account owner dies and the beneficiary is a minor, someone must be designated to administer the money on the minor's behalf.

In conclusion

Making a few simple arrangements can save your survivors from financial burden while they mourn your death. Designate a beneficiary whenever possible and have an attorney draft a will to express your ultimate desires to guarantee that you know exactly where your money is going when you die.