What Happens to Someone’s Bank Account When They Die?

If someone has funds in a bank account and passes away, there are a number of different outcomes depending on the circumstances under which the person planned for the future of their estate. Read on for what you need to know.

What Happens to the Funds in a Bank Account Once the Account’s Owner Dies?

Bank accounts can be set up in different ways. How they’re set up impacts what happens when the account’s owner dies. Here are some of the different scenarios.

• Individual accounts. If there’s only one owner named on the bank account, the funds in the account will probably have to go through probate unless there’s a beneficiary named (see below for more information).
• Joint or co-ownership. In this situation, the account is owned by two or more people (for example, two spouses). If the account is fully shared by all owners, then the surviving owners become the full owners of the assets in it, and there’s no need for probate. If the account is set up so that the owners are only partial owners, they’ll retain what they previously owned, and the rest will have to go through legal channels to be distributed to beneficiaries (heirs, etc.).
• Payable on death (POD) or transfer on death (TOD) bank accounts. These are bank accounts that may be individually owned, but they name a beneficiary to whom the assets will be distributed when the owner passes away. They’re usually not subject to probate. The person named as a beneficiary in the POD or TOD would need to bring their identification and the owner’s death certificate to the bank in question to receive the funds.

What Happens to Bank Accounts if Someone Dies Intestate?

When someone dies without a will that dictates how their estate (assets and debts) should be handled and distributed, that’s known as dying intestate. If the deceased didn’t have a joint account owner or named beneficiary for their bank accounts, that complicates the process of distributing assets. In California, those bank accounts will likely have to go through probate. Probate is when assets are distributed through probate court. It’s a public process, so details of the bank accounts and who (and to whom) they’re distributed become part of the public record.

If the deceased were married at the time of death, all of what’s considered community property in California would go to the surviving spouse. That’s anything, including bank accounts, that was acquired during the marriage. So if the deceased had an individual bank account and made contributions to that account while married, it’s considered community property and will go to the spouse.

Anything that’s not community property–for example, a bank account owned prior to the marriage that had no activity during the marriage–the spouse will receive all the funds in the bank account if the deceased had no other surviving close family members, including children, grandchildren, parents, siblings, nieces or nephews. If there is one surviving close family member, the account funds will be divided evenly between them and the spouse. If there is more than one surviving close family member, the spouse will receive one-third of the accounts while the other family members divide the remaining two-thirds.

If the deceased were not married at the time of death, any surviving children of the deceased would divide the account funds among them. If the deceased had a child that died before the deceased but had surviving grandchildren, the grandchildren would receive their parent’s portion of the funds.

If there is no spouse or close family members, the courts will determine how the funds are to be distributed. The estate may not have to go through probate if it is small enough.

Are There Any Other Ways to Protect the Funds in a Bank Account?

Besides naming a TOD or POD beneficiary to the bank account, there are other legal methods for the account owner to ensure the funds in the bank accounts go to the beneficiaries of their choosing.

Wills. Drawing up a will is one of the most common ways. Having a detailed will that specifies precisely who receives the funds from the account (and if there are multiple inheritors, what portion each is entitled to) will smooth the process for the beneficiaries. Depending on the size and complexity of the estate, the will may or may not have to go through the public probate process.

Trusts. It’s also possible to set up a trust that takes on ownership of the bank account. Multiple types of trusts are available, and it’s advisable to work with an experienced asset protection attorney to determine the right kind of trust for your situation and beneficiaries. These are especially useful for larger estates, as in most instances, they allow the estate to bypass probate. That means the distribution process will likely take less time and money, and it allows the estate to be settled privately, not publicly, as it would if it went through probate.

What Should I Do if I Want to Protect My Bank Accounts?

Call Cava & Faulkner at 916-685-1225 for a free consultation. As discussed in this article, there are many ways you can protect your bank accounts and ensure your assets are distributed as you want them to be. Every estate is unique, and we’ll help you develop a plan that best fits your needs, protecting your assets and making it as simple as possible for your beneficiaries to receive what you want them to have.