If you're named executor of an estate, you may need to establish an estate account. This might sound complicated, but once you understand the purpose of the account, it’s really not that bad.
What is an Estate Account?
An estate account is a temporary bank account opened for the specific purpose of managing an estate’s assets, including centralizing an estate’s funds and paying estate taxes.
Think of estate accounts like a temporary bucket for the deceased’s estate. You funnel checking account balances there. Savings accounts. Maybe you sell their house and put that money there as well. Then, if you have to pay any debts, you pay out of that account. Or say you racked up some legal fees or travel expenses working through probate, you’d pay out of that account.
Another analogy is to think of it like a business account. Separating all the financial movements of an estate from your own makes everything, but especially taxes, simpler.
It's typically opened by the executor or personal representative of the estate, and there are some specific rules that you need to follow when dealing with them.
Estate Account Rules & Important Facts
The estate account you're setting up is temporary.
Once the estate has gone through probate, debts have been paid, and inheritances have been distributed, make sure that you close the account. At that point, there should be nothing left in it, and it will no longer serve a purpose.
Do not reuse one of the deceased's previous bank accounts.
You want an account that has never been used, and will never be used, for any purpose other than managing the estate.
You will need to obtain a special number from the Internal Revenue Service in order to open an account.
We'll discuss that later in the article.
Under no circumstances should you mix your personal money with the estate's money.
Do not deposit any personal checks in the account, even temporarily, and do not remove money from the account until the court has approved you to do so. Assume that every transaction in the account will be looked at closely, and make sure you have a specific reason for each one.
Open the account in the same state the deceased lived in.
If you live in a different state and open an account close to home, the estate could be responsible for taxes in both states.
Make sure that you have all your paperwork in order before heading to the bank.
Banks have very specific requirements in order to be able to open one of these accounts, and they can't be flexible on the paperwork (which means you can't be either).
You can open either a checking or a savings account for an estate, but a checking account is much easier to deal with.
You're going to be paying a lot of bills, and a savings account without checking privileges will require you to transfer to a different account or get a cashier's check; both these options complicate the paperwork. Save yourself the hassle and make sure you open an account you can write checks from.
In the case of a big estate, you might want to consult an accountant to see what makes the most sense for your situation.
If the estate is especially large or includes investments, opening a checking account with an attached brokerage account might make more sense. Many banks offer bank accounts and brokerage accounts.
How To Open an Estate Account
- Choose a bank or financial institution in the same state as the deceased lived.
- Apply for an EIN number with the IRS. This is technically called an Employee Identification Number, but it's what you need to create an estate account, as well. You can apply online for an EIN. There's no cost for it, and in most cases, you'll receive the number online right after applying (but plan a little extra time in case you need to receive it by mail).
- Check with your bank to see exactly what you need to open an account. You'll be required to have an EIN, and you'll also need letters testamentary or letters of administration. This means that the court has identified you as a person who's able to represent the estate. Your bank may require additional documents, so be sure to check beforehand.
Read More: How & Why to Get Your Letters of Administration
- You might have to go to the bank in person to open the account. Tell them that you need to open an estate account. They should know what you're talking about, as these are common.
- Transfer the funds from the deceased's accounts to the estate account and close all other accounts. It's important to note that beneficiary assets (like a life insurance policy with a named beneficiary) and assets with rights of survivorship (like a house that was jointly owned by the deceased and their husband or wife) will not be transferred into the account because the estate does not own these assets.
Read More: Probate vs. Non-Probate Assets — What’s the Difference?
Opening an Estate Account Without Probate
It is possible to open an estate bank account even if the account doesn't go into probate (usually because it's very small and not very complicated). However, if the estate doesn't go into probate, you can't get the letters testamentary needed to open an account. Don't worry, though. There's another document that can help you: the small estate affidavit.
Small Estate Affidavit for Bank Account
A small estate affidavit (which might also be called a voluntary administration or an affidavit in lieu of administration) is a sworn written statement that allows someone to take control of an estate's assets without involving probate court. This affidavit can only be used if the estate is worth less than a certain amount, which varies from state to state but is generally low ($50k-$166k).
(you can find your probate court & more specific rules in our full Guide to Probate)
You can usually download a form online for a small estate affidavit (check with your local records department or use Atticus), or you can ask an attorney to prepare one for you. You will also need a certified copy of the death certificate, a copy of the will (if there is one), a list of assets and debts owed by the estate, and your own personal identification. Then, depending on your state's laws, you will either file with the court or take the affidavit directly to creditors.
Depending on state laws, the small estate affidavit may need to be notarized. If you're in doubt, err on the side of getting it notarized.
Best Banks to Open an Estate Account
The best bank to open an estate account might be the bank that the deceased used. While this is by no means necessary, it can make the process of releasing assets to the estate account easier because you can do it at the same time. In addition, if the deceased had investments, their bank may already have a brokerage account, which is necessary to hold investments.
Convenience will also be a factor, especially if you live in a different area. If there's a branch of the same bank in the deceased's location and yours, you'll have easier access to speak with someone in person, regardless of where you are. Remember, though, to open the estate account in the state where the deceased lived. Otherwise, the estate might be responsible for additional state tax (have we mentioned this enough? It's because it's really important!).
Many banks offer special services or information for estate accounts. These can guide you through the process. The following banks have specific pages for estate services (we're not specifically recommending these banks; we're just providing you with some options to explore):
Bank of America Estate Services
One Step At a Time
Setting up an estate account is a little more complicated than just opening a normal bank account, but the process is basically the same (with a few extra steps added in). If you just take it step by step, you'll have the account set up in no time, and you'll be in a much better position to deal with the financial aspects of the estate process.
And remember, this is just one step in the many that make up probate. If you still aren’t crystal clear on what probate is, then definitely check out our beginner’s guide to probate. It will put all of this into perspective.
