When a loved one passes away, compiling a list of assets that belong to the loved one’s estate can be a daunting task for the executor.
Most people who think of the estate settlement process tend to think about the big assets — the deceased’s house, cars, and heirlooms. But simpler assets, like the deceased’s checking and savings accounts, often require just as much attention.
Navigating the deceased’s bank accounts can be tricky, but the process is made more complicated if the individual dies intestate (without a will). So let’s ask the question – what happens to a bank account when someone dies without a will?
Here’s the simple answer:
What Happens to a Bank Account When Someone Dies Without a Will?
If the deceased named a beneficiary on the account or owns the account jointly, the assets in the bank account will transfer to the beneficiary or joint owner without going through the probate process.
If no beneficiary or joint account owner is named, the bank accounts will be “frozen” and will undergo the probate process. After the probate process, the funds in the accounts will either go to the deceased’s blood relatives or will “escheat” to the state
There’s a whole lot to unpack there — beneficiaries on the account, probate, joint bank accounts, frozen bank accounts, escheatment — so let’s try to break it down.
The first thing you need to know is that every asset after someone passes is broadly split into two camps: non-probate & probate.
Non-probate means bypassing the court & generally receiving the asset faster. Probate assets have to go through the court process of probate and are held up to more scrutiny.
As mentioned above, bank accounts, depending on how they are formed and “owned”, determine which category they fall into.
For a complete breakdown of those distinctions, I recommend reading The Definitive Guide to Probate Assets.
So what does it mean to name a beneficiary on the account, and does that require a will?
What Happens to Payable on Death / Transfer on Death Accounts When Someone Dies Without a Will?
The majority of bank accounts will allow account holders to name a beneficiary on the account.
These accounts are typically called Payable on Death (POD) or Transfer on Death (TOD) accounts. For the purpose of this article, we’ll stick to the common POD account terminology.
Pro Tip: Naming a beneficiary on a bank account does not require a will. You can name a beneficiary on the account for free and with minimal documentation required at most financial institutions.
Why are POD accounts beneficial?
The advantage of POD accounts is that the money will pass directly to the named beneficiary once the bank learns of the account holder’s passing. So the funds will go straight to the beneficiary and likely skip probate, even if the account holder died without a will.
For an executor who is compiling all of the deceased’s assets, one of the first things to check with a bank account is if there is a named beneficiary.
If the deceased did set up the account as a POD account or TOD account, you’re in luck! The assets will likely avoid probate by transferring to the beneficiary. In most cases, the bank will close the accounts as soon as the assets are transferred.
This means the beneficiaries will get their money/inheritance faster.
But that’s not the only instance where this happens. Another type of account — joint bank accounts — will cause a similar transfer to occur.
What Happens to Joint Bank Accounts When Someone Dies Without a Will?
Another common type of bank account is the joint bank account, which might also be referred to as the jointly-owned account or jointly-held account. As the name implies, joint bank accounts allow two account holders to co-own the account at the same time.
These accounts often have a right of survivorship clause, meaning that the assets will transfer to the surviving account co-owner if the other co-owner dies. And just like POD and TOD accounts, these types of accounts can be set up without a will.
You can probably guess why joint bank accounts are beneficial:
Like POD or TOD accounts, the benefit of joint bank accounts is that the money will pass directly to the surviving owner upon the death of the other owner & typically skip probate. So even if one owner dies without a will, the funds will pass directly to the other account owner.
Okay, so we now know that POD accounts and joint bank accounts will allow funds to transfer to either named beneficiaries or account co-owners. But what if it was a solely-owned bank account with no named beneficiary and the account owner died without a will?
That’s where things can get difficult:
What Happens to an Individually-Owned Bank Account With No Designations or Will?
If an account owner dies without naming a beneficiary or having a joint account owner, the account immediately becomes a “deceased account” at the account owner’s death.
These accounts are also commonly referred to as “frozen,” as the bank will freeze the assets upon learning of the deceased’s passing.
No, the bank doesn’t literally freeze the account by putting the account funds on ice in a large cooler, but you’re welcome for the mental image of bankers chipping away at icy piles of cash.
The bank “freezes” the account by ensuring that no one can withdraw or add funds until a court order is given. That court order must be obtained through the probate process.
Because the probate process varies from state to state, the court will follow local intestacy laws to determine the rightful heir of the bank account’s funds.
In most states, intestate succession means that the funds will either go to the deceased’s parents, spouse, children, or other blood relatives. It all depends on which relatives are still alive at the time of the deceased’s passing.
If no blood relatives are located, the funds in the account will go to the state where the deceased’s estate was located. When this happens, the funds are said to “escheat” to the state.
Escheat? No Thank You.
Escheatment isn’t a dirty word, although it’s something that certainly brings up negative feelings.
Escheatment is the last step in a failed attempt to locate the living blood relatives of the deceased. It’s the point at which the state claims ownership over any unclaimed property.
As bad as escheatment might sound, it is easily avoidable. Assets will only escheat as a result of poor planning during the lifetime of the deceased individual.
By doing the following, individuals can avoid the possibility of their bank accounts ever escheating to the state:
- Creating a will
The easiest way to avoid the possibility of escheatment? Create a will. Upon the deceased’s passing, this document will stipulate the distribution of assets that the deceased intended.
- Naming a beneficiary on the account
Even if an individual does not create a will, naming a beneficiary on the bank account will ensure that the account does not enter into probate. A POD or TOD account is a quick and easy way to distribute funds to the correct beneficiary.
- Naming a joint owner on the account
Establishing a joint account will ensure a seamless transition when the account owner passes away. This will allow the funds to remain with the surviving owner and avoid the possibility of the account entering probate.
It all goes back to probate & intestate law
In short, bank accounts, depending on how they are set up, will either bypass probate or be distributed during probate according to a will, or in the case where there isn’t a will, according to local intestate law in the county and state of the deceased’s domicile.
If you’re still confused about the concept of probate, we get it. It’s a bit of a mess, and that’s why we made the guide we wish we had when we were first learning about this, and you can find that here.
