When a loved one dies, there are both emotional and logistical aspects to contend with. You could have intense feelings about the loss, but, at the same time, you might need to complete mundane tasks to manage the deceased’s affairs. When it comes to financial matters like transferring a bank account to heirs, the steps required depend on how the account was titled and any other estate planning in place before death.
In this article, we cover what happens to a bank account when someone dies. We’ll review individual and joint accounts as well as other types of account registrations. And for those planning ahead, we include tips on how to make things easier on loved ones after your death.
Key Takeaways
- Bank accounts pass to heirs through an estate or via beneficiary instructions.
- You can potentially avoid probate with payable on death (POD) beneficiaries or joint tenancy with rights of survivorship.
- When you die without a will, state laws or automatic transfers determine who receives funds.
- An estate planning attorney can help you pass assets to loved ones while minimizing problems.
What Happens to a Sole Bank Account When Someone Dies?
A sole bank account is owned by one individual with nobody else on the account. Also known as “individual” account registrations, these accounts typically take one of the following paths when the account owner dies:
- If there is a POD beneficiary, the funds go to the person, people, or entity named as beneficiary. When this happens, the funds do not need to go through probate.
- If there is no beneficiary, the funds go to the deceased’s estate. From there, any remaining funds will be distributed according to instructions in the will. If there is no will, state law typically dictates who receives the funds.
Note
Probate is the process of proving the validity of the will, paying claims against the estate, and distributing assets.
What Happens to a Joint Account?
In most cases, assets in a joint account automatically transfer to the surviving joint account owners when somebody dies. That’s particularly true for joint tenants with rights of survivorship (JTWROS). But there are several ways to set up bank accounts with multiple account owners, so it’s critical to understand how the account was established.
What Happens to a Bank Account When Someone Dies Without a Will?
There are several good reasons to get a will, but some assets can transfer regardless of whether there is a will in place. When it comes to transferring bank accounts at death, it may not matter whether the person who died had a will.
Automatic Transfers
In some cases, the funds are available to heirs without needing to go through probate.
- With a POD registration, the funds automatically go to the named beneficiaries.
- With JTWROS accounts, any surviving account owners take over the deceased person’s interest in the account.
Estate Assets
If an account does not automatically transfer to somebody else via rights of survivorship or a POD registration, the assets go into your estate. From there, the funds are available to satisfy claims from creditors, and any remaining assets can be distributed according to the instructions in a will. If there is no will, state law generally dictates what happens to remaining assets.
What Happens to FDIC Insurance After Someone Dies?
When a bank account owner dies with assets that are insured by the Federal Deposit Insurance Corporation (FDIC), their FDIC coverage continues for six months after death. A surviving spouse or anybody else involved can use that time to move funds into other accounts and ensure that account balances stay below FDIC insurance limits.
Preventing Complications for Your Loved Ones
Handling the death of a loved one is difficult enough, so it’s smart to take steps that ease the burden on survivors.
Note
Discuss your strategy with an estate planning attorney and certified public accountant (CPA) before taking action. While trying to solve one problem, your efforts may unintentionally create others.
Consider Beneficiaries
It may make sense to add beneficiaries to bank accounts if you know whom you’d like to pass the assets to. With a POD registration, beneficiaries simply need to provide documents such as proof of death to access the money in your accounts.
Consider Joint Account Holders
Adding joint account holders with rights of survivorship makes it easy to pass funds to others. However, there may be several unintended consequences of adding joint account owners. For example, any account owner can withdraw funds, and your money may be available to creditors that bring legal action against other account owners. Adding joint owners can also have gift-tax implications.
Keep Your Estate Plan Current
If you’ve never done any estate planning, now is an excellent time to start. Get a will, and revisit the document periodically to make sure it still accomplishes everything you want it to. With the help of an attorney licensed in your state, you can improve the chances that assets pass the way you want them to. It’s also smart to enlist a CPA as you complete your plan. Doing so can help minimize taxes for your heirs and other complications.
Note
When ownership transfers automatically, the funds do not go through probate. As a result, these transfers may overrule or conflict with any instructions in your will. Your joint account holders and beneficiary designations (if any) generally determine who gets money after you die.
Frequently Asked Questions (FAQs)
What happens if someone dies without a will but has a beneficiary on their bank account?
With a valid beneficiary in place, funds in a bank account go to the beneficiary. That person will need to contact the bank and provide documentation to claim funds. If the beneficiary dies before the bank account owner, the assets typically go to the deceased’s estate. From there, the assets may be distributed according to instructions in a will or by state law.
How long do you have to claim a deceased person’s bank accounts?
There is no exact limit on when you need to claim funds, and you can certainly take some time to adapt to a loved one’s death. However, it’s wise to act promptly. Eventually, the account may go dormant, and banks might be required to turn over dormant accounts to the state for safekeeping (usually after several years). Heirs will still have access to the funds, but there may be extra steps involved. Plus, the executor, personal representative, or administrator might need to close the deceased’s bank accounts to complete the probate process. Finally, when adequate FDIC insurance coverage is a concern, it’s smart to transfer funds within six months after death.
