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When someone dies, the ownership of their bank account is typically transferred to a beneficiary, often a relative. But there are many factors at play, including the type of bank account, whether a beneficiary was named by the owner, if the deceased owner had a will and the specific state or jurisdiction in which the deceased lived.
Ultimately, these factors will determine not only what happens to a bank account after someone’s death, but also how loved ones can claim the deceased’s bank accounts.
When it comes to determining what happens to a bank account when someone dies, the ownership of the account is, perhaps, the most important element at play. If an account is owned solely by the deceased individual, for instance, the process of transferring ownership can, in certain circumstances, be much more complicated than if the account was jointly owned.
If someone dies and is the sole owner of a bank account, be it a checking or savings account, the bank will generally freeze the account (assuming they know that the owner has passed away). While there are different rules in different states and jurisdictions, the bank will then notify the designated beneficiary on the account, and transfer ownership to them. The beneficiary — a person or entity that is entitled to ownership under certain conditions (death, in this case) — then becomes the account’s owner.
But where you live will, in most cases, determine the exact procedure for transferring ownership, according to William D. Kirchick, an attorney who serves as president of National Association of Estate Planners & Councils (NAEPC).
Accounts may also be designated with a “payable-on-death” (POD) beneficiary. A POD is a person or persons designated to be the recipient of an account if the owner dies. In a sense, a POD is something like a contingent beneficiary.
Where things get tricky, however, is If there is no beneficiary or POD designated by an account holder before their death. In that case, family members or other stakeholders will have some other hoops to jump through to claim ownership, which we will discuss in more detail below.
If the bank account in question is a joint account — that is, there are two names on the bank account and one of them dies — then the survivor automatically becomes the sole owner of the account. In other words, upon one owner’s death, the joint account is transferred to the other owner by default.
There are some exceptions, though. If the surviving owner is a minor, for example, then the bank may not immediately transfer ownership. Also, the rules may differ for other types of accounts, like brokerage accounts, so not all joint accounts will default to a surviving owner upon one owner’s death.
Experts like Shabrei Parker, a trust and estate lawyer at Mincey Fitzpatrick Ross in Philadelphia, warn that there are always exceptions to the rules, but in general, what you need to know is that ownership of a joint bank account will go to the survivor in the event of an owner’s death.
If someone dies, has no will and has no beneficiary on their bank account, then the next steps are dictated by state law — and each state’s laws are different. Because a will indicates who the person or persons are that are entitled to someone’s accounts and assets upon their death, the state will need to step in and direct traffic, so to speak, in the event that a will can’t be found.
In general, a bank will freeze a bank account and its assets when its owner dies, as discussed above. After that, state-specific rules and rights of success will apply. A general rubric for how funds or rights to ownership is generally distributed would look something like this: spouses, children, parents, siblings and then grandparents. But again, this will depend on state laws.
In the event that someone dies and there is no named beneficiary, POD, a will or any next of kin that can be found, then any assets in an account will be turned over to the state by default.
While banks are usually notified of an account holder’s death by their friends or loved ones, it’s possible that a bank may not realize that an account holder has died for some time. In those cases, an account can sit dormant — sometimes for many years. While banks do employ people or services to scan local obituary notices to see if any account holders have passed away, they’re sometimes notified by the Social Security Administration that a death has occurred.
But if an account has been dormant for many years — perhaps even a decade — the bank may notify the state and deem it abandoned. In some states, the Secretary of State will publish lists of abandoned funds on the chance that a loved one or someone with a claim will see it. If no one comes forward, though, the money can sit in a state’s pile of “unclaimed property” in perpetuity.
It may not necessarily be easy to withdraw money from a bank account after a loved one’s death, especially if they didn’t name a beneficiary or have a will. But that doesn’t mean that it’s impossible — it just may be laborious and time consuming, depending on the circumstances.
Here are the steps to take to gain access to or claim a deceased person’s bank accounts:
If you are not the executor, or if there’s no will that names one, you will need to petition the local courts to become an executor or administrator. This may be the biggest and most complicated hurdle in the entire process. In many states, a Short Certificate will need to be procured from the Register of Wills (the specifics, again, will depend on your state), which grants you the legal ability to conduct business on behalf of the deceased person.
As discussed earlier, you’ll need to let the bank know that the account holder has died. To do so, it’s a good idea to set up an appointment and bring necessary documents, like a death certificate, identifying information for the deceased (like a Social Security number) and documents like a Short Certificate indicating your legal standing as executor or administrator of the estate.
The bank will conduct its process, and ultimately, should grant you access to the account. But there are taxes and debts that may need to be dealt with — specifically, inheritance taxes and enforceable debts. You’ll need to pay those, or set the money aside; otherwise, you could become legally liable for them in the future.
With taxes and debts taken care of, it’s now your job to disburse the remaining assets according to the deceased’s will, or the distribution scheme agreed upon by the deceased’s family. There may be statutory distribution rules to take into consideration, too, so keep that in mind.
It’s important to keep your affairs in order to make things easier for your loved ones in the event that you die. Even though you may not have much in terms of assets, it’s good practice to plan ahead, think things through, document your accounts and make sure you’re taking the burden off of your family members.
Here are some tips for avoiding undue complications with your bank accounts if you die: