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After you die, any number of things can happen to your bank accounts. They might go to a person who co-owned the accounts with you, for instance, or might end up in probate court if you didn't leave a will. The path that your accounts head down following your death can be perfectly straight or incredibly windy, depending on how you decide your financial matters should be handled once you're gone.
Here's a look at what can happen to your bank accounts after you pass away.
What Happens to a Bank Account When Someone Dies?
There's no easy explanation for what happens to a bank account when someone dies. The fate of the account depends largely on who the account holder decided would manage their assets after they died.
Part of that equation is whether the estate must go through probate. Probate is a legal process that enables the distribution of someone's assets following their death. As part of this process, a probate court determines whether the deceased person's will is valid and oversees distribution of that person's assets.
Here's a review of some of the scenarios for bank accounts when an account holder passes away.
Joint Account Holder
If you're a joint owner of the account, your account co-owner should be able to take over the account without any hassles. Most banks set up accounts so that if one joint account holder dies, the surviving account holder automatically becomes the lone account owner.
In some cases, a surviving beneficiary is designated through a payable-on-death arrangement. Under this scenario, the owner of the account names a beneficiary who would automatically inherit the account after the owner dies.
Among the types of accounts that can have a payable-on-death designee are a checking account, savings account and certificate of deposit (CD).
As part of their estate planning, some people establish what's known as a living trust. This legal arrangement lets a person shift ownership of their assets, including a bank account, to a trust account. Under this arrangement, the person who set up the trust names a trustee who's responsible for distributing the trust's assets following the person's death.
In this situation, a probate court doesn't get involved in what happens to the deceased person's assets, which can save everyone involved time and money.
If you're the executor of the deceased person's estate, the process of accessing that person's bank account is a bit more complicated than if you're a trustee. The executor of an estate is named in a will.
An executor must be given permission by a probate court to withdraw money from the account and close it. The court will want to see proof that you're the executor and a certified copy of the death certificate before granting access to the money.
No Executor or Will
If the deceased person did not name an executor in their will or didn't leave a will, a relative or legal representative for that person must seek permission from a probate court to access the account. Once that permission is granted, the relative or legal representative receives official paperwork that they then need to present to the bank where the account is held.
4 Ways to Avoid Probate on Your Bank Accounts
The probate process can drag on for months or even years after someone dies. Here are four ways to keep your beneficiaries from going through a potentially drawn-out probate process that can delay access to your bank accounts.
1. Add a Joint Owner to Bank Accounts
Naming a joint owner, such as a spouse, for your bank accounts is one of the simplest ways to ensure the accounts don't wind up in probate court. After you die, the remaining joint account owner will simply take over the accounts.
2. Designate a Payable-on-Death Beneficiary
When you open a bank account, you may be able to name what's known as payable-on-death (POD) beneficiary. This designation lets the beneficiary take control of the account after you die without it going through the probate process. Unlike a joint owner, a POD beneficiary isn't entitled to money in the account until the account holder dies.
3. Set Up a Living Trust
To bypass the probate process, some folks create a living trust to hold their assets, including bank accounts. After you die, whoever you named as a successor trustee controls the trust's assets and distributes the assets to the beneficiaries you named.
A living trust can be a revocable trust or irrevocable trust. Simply put, a revocable trust lets you update or revoke the trust at any time while you're alive, while an irrevocable trust is permanent.
4. Give Away Assets
One surefire way of avoiding probate is to give away your assets while you're alive. So, if you decide to give away all of the money in your bank accounts and then close them, these monetary gifts won't become part of the probate process.
Can I Withdraw Money From a Deceased Person's Bank Account?
If you're the joint owner of the deceased person's bank account, you should be able to withdraw money right away. Otherwise, you typically must supply documents showing that you legally have access to the account. Documents a bank might request include:
- Government-issued ID, such as your driver's license or passport
- Death certificate
- Small estate affidavit, which enables a beneficiary to skip a trip to probate court
- Letters of testamentary, which are official documents given to the executor of a deceased person's estate that's heading to probate court
- Letters of administration, which a probate court gives to the appointed administrator for the estate of someone who died without a valid will
How Long Does It Take for a Bank to Release Money After Death?
How long it takes for a bank to release money after the death of an account holder depends on several factors. These include how complicated the deceased person's estate is, how complex the person's financial documents are and how much their assets are worth. The money may be available fairly quickly, or it could take months or even years.
The Bottom Line
Proper estate planning while you're alive can ease the pressure on your beneficiaries when it comes to determining the fate of your bank accounts. Generally, it's wise to consult an estate planning attorney or another advisor to square away what you want to happen to your bank accounts and other assets after you're no longer here. This may help your survivors focus on the grieving process rather than the probate process.