When a loved one dies, there’s a lot to do. You must notify everyone and plan a funeral. It can be an emotional time. But when the funeral dust settles, the work begins, including sorting out the finances.
But what do you do with the deceased’s bank account? Your loved one might also have brokerage or retirement accounts. And they may or may not have a beneficiary. What happens to them?
Setting Up Beneficiary to Bank Account
If the bank account has a named beneficiary, the money will pass to them. But in order for this to happen, the account holder must do one of two things before they pass.
The beneficiary must be named as a “payable-on-death” (POD) or “transfer-on-death” (TOD) beneficiary to the account.
When you set up your account, you’ll need to name a POD. Some banks require you to work with a customer service representative to do this, while others allow you to do it online.
When Does a Bank Release Funds?
The bank will usually release the funds to the account beneficiary once it is notified that the account holder has passed. They’ll require proof of death, usually a death certificate.
When there aren’t any complications, the funds are released, and the account is closed.
However, if there are questions about who the account belongs to, the bank will freeze the account and wait for a court decision before releasing the funds.
If the bank doesn’t know the account holder has died and no beneficiaries or family can claim it, the account is considered abandoned. It is regarded as unclaimed property and turned over to the state.
A Bank Account Without a Beneficiary
When someone dies without a beneficiary the administer of the decease’s account will oversee managing their funds. Depending on whether the deceased has a will, this person could be a trustee or executor. If the deceased didn’t choose anyone, the state will appoint one.
If there isn’t a will or beneficiary, the state takes control of the estate. The account will go through probate court, and funds will be distributed according to local inheritance laws.
Relatives or other legal representatives may ask the probate court for permission to access the accounts.
Joint Bank Accounts
There is usually an automatic right of survivorship. This means the person on the joint account, the signer, retains ownership of the funds. Even if there isn’t a beneficiary, the account won’t go to probate, and the survivor can continue using the money in it.
On a joint account, creditors can’t claim funds from the account.
A secondary account holder will have the account closed. However, the secondary account holder should be able to remove the funds during the settlement process.
Although a joint account holder has up to $500,000 insurance from the Federal Deposit Insurance Corp. (FDIC), if the joint account isn’t settled within six months, it drops to $250,000. This is because the account is considered owned by an individual.
The proper documentation, like a death certificate, will be required to take control of the monies.
Bank statements for joint or single account holders should be kept for three years, but you don’t have to keep them for more than seven.
Keeping the bank statements for at least seven years will help if there is a tax audit or any legal challenges.
What Happens If Someone Dies With a Brokerage Account?
If you have a joint brokerage account, your spouse or whoever else co-owns the account. The account will usually be kept by the co-owner, who will just keep the investment account. So, if you have joint tenants with “rights of survivorship” or “tenants by entirety,” the co-owner keeps it.
But if you have tenants in common, the deceased’s interest in the account can be left to someone else besides the co-account owner.
Without a joint account or transfer on death account with a beneficiary, your account will go through probate, and without a will, the state intestacy laws determine who inherits.
Ask your brokerage firm which type of account you have. If you have tenants in common with the co-owner, you can take steps to designate who inherits your portion.
What Happens to a 401(k) Upon Death?
Most 401(k) plans will allow you to complete a beneficiary form online. The form must have the beneficiaries’ Social Security numbers and birthdates.
The deceased needs a “per stirpes” designation to pass the funds onto children. This indicates part of the funds will go to their children. If this isn’t done, their portion will go to the primary or contingent beneficiaries.
For example, the will designates the decedent’s brother and sister as the beneficiaries. The sister has two children. But if the sister dies before the deceased dies, then 100 percent of the funds will go to the brother. But if there’s a per stirpes, 50 percent will go to the brother and 50 percent will be divided among the sister’s children.
Many plan administrators require the spouse to be the primary beneficiary unless they give written consent to someone else.
Designate a Beneficiary
The bottom line of estate planning is to designate who will receive your funds. You worked hard to build your wealth, and you should have your choice over who receives it.
Meet with an estate attorney to determine what you should do with your assets.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.