What happens to your bank account after you die?
After you die, several things can happen to your bank account, depending on the type of account you have, how you set up your account before your death, and whether you created a will or a trust. Learn about common ways to set up your account to make things as easy as possible after you die, and what will happen if you don’t set anything up first.
Key points to remember
- Adding pay-on-death (POD) beneficiaries to your account is the easiest and cheapest way to ensure your heirs have easy access to your account after you die.
- Establishing a will or trust can help your heirs access the money after you die, but may still be subject to probate.
- Adding joint account holders with rights of survivorship simplifies things after your death, but can lead to complications during your lifetime.
- Doing nothing will make things more complicated and stressful for your survivors, so for them, make sure you have something in place.
By far the easiest way to pass your bank account on to your heirs after your death is to ensure that you name beneficiaries payable on death (POD) on your accounts. POD beneficiaries differ from standard beneficiaries in a very distinct way. If you go without a will, the estate is declared intestate and will go to probate rather than directly to your beneficiaries. If you want the money to go to your survivors in the easiest, fastest, and least stressful way possible, you want to avoid probate as much as possible.
Once you have named a beneficiary payable on death, they will not have direct access to your money until you are successful and you always retain the ability to change the named beneficiary payable on death at any time. This option is often referred to as a “pauper’s trust” since it essentially acts as a trust that easily transfers money to whoever you designate, you can change it at any time, and you don’t have to set up an expensive trust. by a lawyer and potentially pay a fee each time you want to make changes.
If you have listed someone as a POD beneficiary on your account, after your death all they will need to do to access funds from the accounts is show a valid government ID and a copy of your death certificate .
have a will
If you have a will in place, your heirs may not necessarily avoid probate, but you will at least have a guideline in place as to who gets your assets. The probate process can be very long and your heirs may have to hire expensive probate lawyers depending on where they live. Your will becomes public after your death and assets passed on by will may still be subject to inheritance tax.
Set up a trust
A well-established trust will avoid probate and may reduce the tax liability of your heirs. Unfortunately, not all trusts are created equal and they are not always perfectly constituted. Trusts can be expensive to set up and maintain and may not be worth the cost if you have a simple estate with few assets and few potential heirs.
Add account holders
Adding account holders to your bank accounts can make things easier for your heirs after you die, but it can have drawbacks while you’re alive. Most joint account holders are considered joint owners with rights of survivorship (JTWROS), which means that the account simply passes to the survivor(s) when an account holder dies. Check with your bank if you are unsure of your account status.
Having multiple account holders can be complicated in your lifetime. Others named on your account may be subject to gift tax and have the ability to withdraw funds from the account whether you want to or not. Additionally, the assets in the account are legally considered theirs for the purpose of qualifying for government programs or if they have a creditor with a judgment against them. Make sure you trust the people you name on your account and consider the possible ramifications before doing so.
What if you haven’t configured anything?
If you don’t set anything up before you die, your accounts will be subject to probate and distributed according to your state’s laws. In most states, an executor will be appointed who will be responsible for repaying creditors of the deceased. The remaining money will be distributed to the spouse and children of the deceased. If the deceased has no survivors, no wills or trusts, beneficiaries or joint account holders, the estate funds will go to the state in most cases.
How can I avoid probate?
If you have a simple estate with no assets other than a bank account, adding a beneficiary payable upon death to your account(s) is the easiest way to avoid probate. If you have a complex estate or multiple heirs to leave things to, a trust may be your best bet to avoid probate.
Do my heirs have to pay taxes on the money in my account?
It depends. Estate tax has a relatively high threshold – $12.6 million in 2022. Gift tax, by comparison, comes into play if you “give” more than $16,000 to your heirs. A common strategy is to offer your heirs up to the annual gift exclusion if your primary goal is to avoid gift tax and your estate is small enough that you can give most of it to people who would return it if you were in a financial situation. need before your death.
The easiest way to pass the money from your bank account to your heirs is to designate them as beneficiaries payable upon death on your account. Establishing a will or trust is an important part of estate planning, but it may not guarantee that your heirs will have access to your money quickly. Adding account holders makes it easier after you pass, but make sure you understand the risks of doing so while you’re alive. Whichever option you choose, be sure to do something to make life easier for your survivors as they grieve.