While death is certain, the fate of a decedent's bank account is not. Sometimes bank accounts close immediately upon death. In other cases, the accounts remain open for months or even years as the estate awaits settlement in probate court. Co-ownership of a bank account also affects the length of time the account stays open.
How long a decedent's bank accounts remain open depends on how long the probate process takes.
Typically, the belongings of a person who dies pass to beneficiaries through the probate process. The same is true of their bank accounts. Accounts stay open until the probate court settles the estate and determines who will get the money in the account. Often, however, the executor can access funds in the account to pay final expenses, like funeral costs. To do so, you must provide letters testamentary to the bank.
A letter testamentary sounds complex, but it's just a letter issued to you by the probate court. This letter confirms that you are the executor of the estate and have the legal authority to access the deceased's funds. You'll need this letter to pay bills, file tax returns, manage assets, open accounts and close accounts.
Banks often have their own protocols and rules about closing a decedent's account. For example, you might have to file a copy of a death certificate with the bank. Some banks require an original death certificate rather than a copy. You will also need to request a taxpayer identification number for the decedent's estate. You can easily obtain one from the IRS and will need it to transfer existing bank accounts or create new ones.
When you do close the account, the event may trigger early withdrawal penalties, depending on the type and terms of the account. To remedy this problem, you can change the name of the bank account to your name without actually closing it.
Dealing with joint accounts complicates things a bit. If you hold a joint account with someone who dies, keeping the account open and continuing to use it generally an option. In this instance, you would present the bank with a death certificate and ask them to re-title the account in your name only. In some states, a surviving account holder has only limited use of the joint account while the estate is in probate. In others, the decedent's portion of the account is subject to estate tax and gets taxed even if the surviving account holder withdraws the money.
State probate codes sometimes allow small estates to undergo a shorter probate process. In order to qualify, the estate must be under the value stipulated by state law. In these circumstances, a spouse or next of kin might have to sign an affidavit stating that they paid the funeral expenses and other debts in full. Then, the judge will confirm that no other probate proceedings have commenced and authorize a specified individual to transfer personal property, including funds in the bank account.
If the decedent established a payable-on-death account, the money will transfer automatically. This type of account works like a regular bank account while the account holder is alive. When they die, however, the account is automatically closed. Any money in the account transfers to the beneficiary that the account holder chose before his death. These accounts function independently of a will and are therefore not subject to or bound by probate court.