People often neglect to include bank accounts when making arrangements for distribution of their assets after death. The deposit agreement between the bank and the account holder is one determinant for what happens to a bank account when the owner dies. However, if the deceased person had an individual account with no provisions for a beneficiary, the legal options for handling the bank account vary based on state laws, marital status and whether a will was left. Someone who has not clarified her wishes in writing might be leaving her bank accounts to distribution under state laws, or the accounts might go to an inheritor who will not use the assets as she intended.
TL;DR (Too Long; Didn't Read)
When someone dies, their bank accounts may either go to a joint account holder, a surviving spouse or any benefactor listed in the account holder's will.
Wills and Interstate Laws
A last will and testament dictates who inherits a deceased person’s assets, including bank accounts if they are mentioned in the will. The will undergoes probate, taxes are assessed and the executor distributes the assets. A person who does not leave a will has died intestate. If no other provisions were made regarding the bank accounts, the state determines beneficiaries using its intestate laws.
The probate court assigns an administrator who distributes all the assets, including bank accounts, using the list of heirs in the state’s statutes of descent. The list begins with the closest living relative of the deceased person and continues through the line of descent. Under state laws, the bank might be required to send the funds to the state’s unclaimed property office if the rightful owner cannot be located.
A bank account with a payable-on-death, or POD, provision names a beneficiary. Some states allow an account holder to name more than one beneficiary. When the account owner dies, the funds in the account automatically go to your named beneficiary without going through probate or being mingled with other assets for distribution under a last will and testament. The POD account allows a beneficiary immediate access to funds to pay funeral expenses. The POD beneficiary has no access to the funds until the account owner dies.
The surviving owner of a joint account becomes the owner of all of the funds in the account, regardless of how much money either owner deposited in the account or whether the account contract limited the surviving owner’s access to the account. The deceased person’s share of a joint account is not part of the person’s estate or subject to his will. The funds cannot be claimed by heir or creditors. A joint account owner can sign a written agreement with the other owner to make alternative arrangements for his share of the account, if state laws allow. The agreement can direct that his share go to his estate.
Community Property States
The bank account of a deceased person might be the property of a spouse if the couple lived in one of the nine community property states. Under community property laws, all assets the couple acquires during the marriage are considered marital property and are owned 50/50 by each spouse. The community property states -- Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin -- consider assets acquired before the marriage to be separate property.
A bank account that is separate property of one spouse can become marital property if after-marriage assets are deposited. A couple’s handling of marital and personal assets, and the deceased person’s will or other legally binding arrangements, determines who inherits the deceased person’s bank account.
Gail Sessoms, a grant writer and nonprofit consultant, writes about nonprofit, small business and personal finance issues. She volunteers as a court-appointed child advocate, has a background in social services and writes about issues important to families. Sessoms holds a Bachelor of Arts degree in liberal studies.