It’s tough to lose a loved one, but despite the grief, some tasks must be handled to deal with the estate. One potentially complex area is the transition of the decedent’s bank accounts to his or her beneficiaries. SederLaw’s Estates & Trusts practice aims to simplify the process by helping executors and estate representatives do what needs to be done to pay estate debts, distribute assets, and uphold fiduciary obligations.
Was there a POD or TOD beneficiary on the account?
The first matter to determine is whether the decedent account holder named a beneficiary by establishing a payable on death (POD) or transferable on death (TOD) account. If the account holder did so and named someone as a beneficiary, the bank will release the funds to the beneficiary after it learns of the account holder’s death. Following this, the bank usually closes the account.
POD or TOD beneficiaries usually override beneficiary designations in wills because they are created by a contract. But they generally will not override joint account holders, meaning the surviving co-owner will simply take over the account. This raises the next question.
Will a joint bank account always avoid transfer issues?
If the account was jointly owned by the decedent and someone else, the other individual named on the account usually has automatic rights of survivorship. This means that the survivor can keep using the account and the money in it without problems. The account may need to be closed if the other user is a secondary account holder. Ask the bank for details on their joint account policies.
Having a joint bank account usually avoids transfer issues, but not always. There are cases in which the account doesn’t pass directly to the joint account holder. It must be determined whether the account belongs to the co-owner or becomes part of the decedent’s estate. In answering this question, a probate court may examine:
- The decedent’s intention in opening the account, e.g., whether it was to allow the joint holder to use the account after the decedent passed
- Whether the surviving account holder had interest from the account reported in his or her name for tax purposes, the absence of which likely means the account is an estate asset
- Whether the surviving co-owner regularly made account withdrawals, the absence of which likely means the account is an estate asset
- Who has the passbooks for the account; if it was the decedent, the account will likely be considered part of the estate
Does it matter if the decedent had a will?
If the account holder died intestate (meaning, without a last will) but it was either jointly owned or had a POD/TOD beneficiary, then the absence of a will typically makes little difference. But if a sole account holder dies without an account beneficiary or a will, additional steps must be taken.
First, the probate court must appoint someone to serve as the personal representative of the estate. This will subject the bank account to the long and sometimes arduous probate process, which is needed for anyone to access the funds. An exception is if the account was part of a trust, in which case probate won’t be necessary. Next, the money that is accessed from the account will be used to pay estate debts. Finally, any money that is left over will go to heirs as provided in the intestacy laws.
How to minimize problems with bank accounts
If you haven’t named someone as a POD or TOD beneficiary on your sole bank accounts, it’s a good idea to do so. It avoids the probate issue and lets your named beneficiary take possession of account funds after your passing. But it’s important to remember that a POD or TOD designation will likely override one contained in a last will and testament.
On the other hand, a joint account owner will probably get the money before anyone else. So if you prefer your spouse or some other trusted person to keep using the account and its funds after you die, add them as a joint account holder. Again, make sure you ask the bank about its joint account policies so you understand what exactly happens after your passing.
The rules surrounding bank accounts can be confusing, which is why you need dedicated legal counsel to help you plan your estate and determine who inherits what. The Estates & Trusts team at SederLaw will help you get started with your personalized estate plan.