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Whether you’re planning for yourself or a loved one, there will likely come a point when you’ll have to figure out what happens to a person’s bank accounts after they die.
Designating beneficiaries to financial accounts—including bank accounts—can make things easier. This is especially true if someone dies without a will. There are steps you can take to make sure a bank account gets passed down the way its owner intended.
What Happens to a Bank Account When Someone Dies?
When someone dies, their assets are usually passed down to a named beneficiary or heir. This includes assets like a house and other property, as well as bank accounts. For this to happen, an individual needs to be named as a payable-on-death (POD) or transfer-on-death (TOD) beneficiary to an account.
While you might not be prompted to name a POD beneficiary when you set up your bank account, it’s something anyone can do. Some banks allow you to name a beneficiary right from your online account, while others may ask you to work with a customer service representative.
After a bank learns that an account holder has passed, they’ll typically release the funds to the individual named as a beneficiary on the account. This requires confirmation of death, usually in the form of providing the bank with a certified death certificate. If there are no complications, once the funds are released the account will be closed. If there are questions about who the account funds should pass onto, the bank may freeze the account pending a court decision.
In some cases, a bank may not know that an account holder has passed. If this happens and there is no next of kin to claim the account, it may be considered an abandoned account. The account becomes unclaimed property and may be turned over to the state.
What Happens to a Bank Account When Someone Dies Without a Beneficiary?
The person in charge of administering a deceased person’s estate will be responsible for managing their funds when they die and don’t name a beneficiary to their account. Depending on whether or not the deceased person has a will, this could be a person they’ve pre-selected—such as a trustee or executor—or it may be someone appointed by the state. Whoever manages the estate will be responsible for repaying creditors and then distributing whatever is left according to directions left in the will.
When someone dies without a will or named beneficiary to an account, the state government will take control over the deceased person’s estate. It will be handled by a probate court, and whatever funds remain will be distributed according to local inheritance laws. A relative or other legal representative may be able to ask the probate court for permission to access the deceased’s accounts. Estate planning can help ensure the right person takes control of a bank account after someone passes away.
Joint Bank Account Rules on Death
Aside from having a named beneficiary, one of the other ways ownership of a bank account can be passed on after someone dies is if the account is a joint account. Many banks provide the joint owner with the right of survivorship, meaning the account will automatically pass on to the other named owner of the account.
Unlike individual bank accounts, joint bank accounts that have a surviving owner won’t go through probate. Instead of becoming part of the estate of the person who has passed on, joint accounts are transferred to the surviving owner. That means creditors can’t claim funds passed on from a joint account as part of the deceased person’s estate.
That being said, the survivor will still need to follow a process to verify one account owner has passed away. This includes providing proper documentation and, in some cases, opening a new individual account to transfer the funds to.
One important thing to note about a joint bank account after death, as well as a regular individual account, is that FDIC insurance only applies for six months. Typically the FDIC provides coverage up to $250,000 per account, per category, per bank. If the account balance exceeds that, the new account owner will have six months to move the funds to a different account to ensure the continuation of FDIC coverage.
How Long Do You Have To Keep Bank Statements After Someone Dies?
As a general rule of thumb, it’s a good idea to keep bank statements for at least three years but no more than seven. One reason for this is that the IRS typically performs audits within three years. It’s a good idea to keep all tax-related documents on hand, including bank statements, in case there is an audit.
At most, you should keep bank statements for seven years. Not only can this protect you during an audit, but it can help you resolve any ongoing issues or legal challenges that come up after someone dies.
After seven years, it’s fine to shred old bank statements. If an account has been closed, there are no outstanding financial obligations, and it’s unlikely the account will be audited, you can get rid of statements before the seven-year mark.
Be sure to shred bank statements, even if the account holder has passed away. Fraud can still happen, even after death.
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