By TJ Porter

The old saying goes “you can’t take it with you,” but that leaves the question: What happens to the bank accounts that you leave behind? While the departed aren’t concerned, their heirs are affected by how the deceased set up their bank accounts.

What happens if the sole owner of an account dies?

If someone is the sole owner of a bank account, what happens next depends on a few factors.

Many banks allow their customers to name a beneficiary or set the account as Payable on Death (POD) or Transferable on Death (TOD) to another person. If the account holder established someone as a beneficiary or POD, the bank will release the funds to the named person once it learns of the account holder’s death. After that, the financial institution typically closes the account.

If the owner of the account didn’t name a beneficiary or a POD, the process can get more complicated. The executor, or person who administers a person’s estate when he or she dies, will become responsible for using the money to repay creditors and dividing the remaining funds according to the deceased’s will.

What happens to joint accounts when someone dies?

Most joint bank accounts include automatic rights of survivorship. In short, if one of the signers on the account passes away, the remaining signer (or signers) on the account retain ownership of the money in the account. That means that the surviving account owner can continue using the account, and the money in it, without any interruptions.

It’s worth noting that the death of an account holder can impact the insurance on an account. The Federal Deposit Insurance Corp. will continue to insure an account as if the decedent is alive for six months after his or her death. Once that time passes, the FDIC coverage stops. Joint accounts can receive up to $500,000 in protection; however, that amount will revert to the $250,000 in protection applicable to individual accounts if one of the joint account holders dies.

Still, if you’re a signer on a joint account, it’s worth checking with your bank to make sure that the account has automatic rights of survivorship. Some banks will freeze joint accounts if one of the signers dies, which could be a problem if you rely on the account for regular spending.

What happens to a bank account when someone dies without a will?

If someone dies without a will, the money in his or her bank account will still pass to the named beneficiary or POD for the account. If someone dies without a will and without naming a beneficiary or POD, things get more complicated.

In general, the executor of the state is responsible for handling any assets the deceased owned, including money in bank accounts. If there is no will to name an executor, the state will appoint one based on local law. The executor has to use the funds in the account to pay any of the estate’s creditors and then distributes the money according to local inheritance laws.

In most states, most or all of the money will go to the deceased’s spouse and children.

How do banks discover someone died?

Banks can discover the death of an account holder in a few ways.

Family member

One of the most common ways for a bank to discover that an account holder has died is for the family to inform the bank.

If a loved one has passed away, inform the deceased’s bank by bringing a copy of his or her death certificate, Social Security number, and any other documents provided by the court, such as letters testamentary (a court document giving someone legal power to act on behalf of a deceased person’s estate) provided to the executor.

Informing the bank lets it begin the process of distributing the deceased’s funds and closing the account.

Social Security

Often, funeral directors will take on the task of informing Social Security of a person’s death on behalf of the family. This saves the family the effort of telling Social Security about their loved one’s passing and makes sure that the heirs don’t have to deal with returning Social Security checks that shouldn’t have been issued.

If Social Security sent a payment for a month after the deceased’s death, the payment must be returned. Social Security will contact the bank that received the payment to ask for the return of funds. If the bank didn’t already know about the account holder’s death, receiving that request will inform it that the account holder died.

How to avoid complications

The last thing that people want to think about while grieving the loss of a loved one is money. There are some proactive steps that you can take to help your loved ones avoid complications if you die.

“Always have a will drawn up by an estate attorney and set up beneficiary designations or TOD, but the easiest way to deal with bank accounts is to simply have an authorized signer on the account so they don’t have to wait,” says accountant Eric Nisall, who has recent experience with handling the accounts of a deceased loved one advises. “They can just go in and take the money or wait and remove the decedent at a later time.”

If you have power of attorney for a loved one who is in poor health, you can add a joint account holder or a TOD to their accounts in preparation for the future.

Another important thing to do is to make sure that your family knows about all of your financial accounts. With the rise of online banking, it’s much easier for accounts to get lost in the shuffle.

“I think a common mistake is not knowing about all of the accounts,” says Nicole Rosen, a registered agent. “When my mom passed away, there was one account that didn’t have a POD. I couldn’t access this single bank account and it laid dormant. The bank charged enough fees to drain and overdraw the account.”

So, a good strategy is to consolidate your accounts as much as possible, leaving fewer accounts for your heirs to track down.

If you’re trying to find accounts left behind by a loved one, try checking your state’s unclaimed money database. Banks have to surrender unused accounts to the state after a period of time set by local law. The state then lists that unclaimed money for the original owners to find before escheating it for public use. You might be able to use these databases to find money that you or your loved one forgot about.

Bottom line

No one likes to contemplate their mortality but making basic preparations with your finances can save your loved ones from financial stress while grieving your loss. Make sure to use beneficiary and POD designations whenever possible and have a will drawn up by an attorney to outline your final wishes.

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Integrating new money into a financial plan while navigating the loss of a loved one is often a complicated process.

by Sam Swenson, CFA, CPA

The period leading up to and shortly after losing a close relative is often one of the most emotionally demanding times we, as humans, experience. The crippling grief of loss, coupled with the toll of anticipatory grief, can make it difficult to think clearly and function effectively. When an inheritance is involved, it is especially important to be a responsible steward of the money you’ve received and do your best to integrate new funds into your broader financial plan. Below, you’ll find four considerations for managing inherited money.

1. Pause to organize your thoughts and future actions

Aside from attending immediate events such as a funeral or memorial service, it’s important and necessary to take time to grieve and reflect on the loss of your loved one. It’s also important to avoid the urge to make any sudden, large changes to your life if you’ve inherited a windfall. Once a bit of time has passed, you should have a candid discussion with other heirs to determine the full list of responsibilities at hand and who will manage each one. The pre-appointed executor, or court-appointed administrator, should spearhead this process.

2. Create a plan (and don’t forget to act)

While this can be done as a team, take a full and complete inventory of the assets in your loved one’s estate — both probate (assets without a named beneficiary) and non-probate (assets with a named beneficiary). Remember to discontinue any of your loved one’s subscription services and recurring household expenses (i.e., cable and electric) when the executor has deemed it appropriate to do so. Once you’ve paid final expenses, created an action plan, and assigned responsibilities, it’s time to act on distributing assets to heirs.

3. Integrate to avoid mental accounting

It might seem convenient to keep your inheritance separate from your existing portfolio, but new money should be integrated into your own financial plan as if it were earned income. According to a variety of behavioral finance studies, we tend to view inherited money as eligible to be spent on discretionary items — we consider this money to be “found money.” We also tend to mentally view inheritances as “separate” from previously earned money. The truth is, although it was not earned at a job or side gig, this money is very much yours and should be integrated into your existing financial plan — if you have one! If you don’t yet have a written financial plan, it’s best to meet with a fee-only financial planner who charges by the hour or on a fixed-fee basis.

4. Ensure your financial priorities are met

Consider your inheritance an important opportunity to change the trajectory of your net worth. Use it to pay off or reduce long-standing debts, such as credit cards or student loans. Work on building an emergency fund — at least six months’ worth of living expenses — that will cushion you from unforeseen circumstances, including a pandemic-era-like job loss. Ensure that Roth (or Backdoor Roth for those who exceed income limits for Roth) contributions are made for this year and last year, if you’re still within the previous year’s tax filing deadline. Investing in a taxable brokerage account is a great idea if any money remains after priorities have been addressed. Bigger goals, like paying off an entire mortgage, can be deferred if you’re young and have locked in a favorable interest rate.

5. Be creative

It may be the case that you’ve inherited non-financial assets, like a car, artwork, or antiques. Strive to be open and honest with fellow heirs — if you can truly use one of the items, say so. Separately, if you aren’t ready to part with some of the items, offer them to extended family or friends. It can be comforting to know that otherwise unused belongings are put to good use by people you know. Alternatively, inherited artwork or antiques can often be repurposed or sold, and if you can afford to insure and maintain an additional vehicle — and you want one — inheriting one is a fortunate outcome. Try to avoid storing inherited items unless there is a plan to remove them within a specified timeframe, as storage charges can add up quickly over long periods of time.

Losing a close relative is difficult enough, but the need to prudently manage any inheritance will nonetheless loom large. In a perfect world, every family would have updated estate planning documents in place, with every family member agreeing as to the contents of said documents. This is rarely how it works out in practice, and it’s important to take a deep breath, take your time, and do your best to be realistic, practical, and a bit creative in absorbing inherited assets into your own life.

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If your goal is to look out for your loved ones, consider tackling these estate-planning additional jobs.

By Christine Benz

Estate planning is the easiest financial-planning to-do to put off. It’s certainly not fun to ponder your own mortality, and yet that’s the very nature of estate planning. Lawyers are often involved, so it can be hard to get it done on the cheap. And while most financial-planning jobs provide at least some payoff during your lifetime, estate planning isn’t as much for you as it is for your loved ones.

Given all of those reasons, it’s no wonder that so many individuals put off creating or updating on an estate plan. But anecdotally, at least, the pandemic seems to be lighting a fire under some people to get serious about creating or updating their estate plans once and for all. It could be that they’ve been spurred on by the health crisis, which has already claimed too many lives, or they may finally have a bit of free time. A single friend had been lobbing questions at me about executorships and charitable bequests for several years now, but she recently texted me that she’s finally doing an estate plan. Another friend and her husband are updating their documents to reflect what has changed in their lives since they last prepared them. Among other adjustments, they’ve granted powers of attorney and executorship to their now-adult children rather than their siblings, who are aging.

Making sure you have the key estate planning documents in place is important; that means a will, an advance directive (or living will), powers of attorney for healthcare and financial matters, and guardianships for minor children, first and foremost. Trusts may also make sense in certain situations. But there are other add-ons that you can think about in the context of your estate plan, especially if your goal is to make life as easy for your loved ones as possible and to ensure that your wishes are carried out after your death. In contrast with a traditional estate plan, you can craft at least some of these documents on your own, without the aid of an attorney.

In my parents’ later years, I was intimately involved and eventually in charge of their finances, managing their investments, paying their bills from their bank account, and so on. When they eventually passed away, I didn’t have to hunt around for key documents or climb a learning curve about their finances.

But many of us don’t have or want that kind of backup in place, which is why I think it can be helpful to create a financial overview and master directory for your loved ones. (These documents can also come in handy if you’re the main financial decision-maker in your household and your spouse doesn’t pay too much attention.) A financial overview and master directory (the latter of which I’ve detailed below) go hand in hand.

A financial overview lays out the basics of your finances in a straightforward narrative. I think it can be especially helpful if your loved ones aren’t especially conversant in financial matters, or if they’re “words” people rather than numbers-oriented. (One way to think of it is that the financial overview is a Word document, whereas the master directory is Excel.)

I recently created such a financial overview for our household and included the following headings:

• Our estate plan (in very broad outlines: where to find the documents and who the key agents are–POAs and executors).
• Our key financial assets (no dollar amounts or account numbers; just where we hold the accounts and who owns them).
• Our insurance coverage (property/casualty, health, life).
• Our house (property ID number, whether there’s a mortgage).
• Cars (VIN numbers, whether there are car payments).
• Regular household bills that we pay.

2. A Master Directory
Think of a master directory as a detailed version of your financial overview. Whereas the financial overview is a Microsoft Word document, this is the Excel version. For example, your financial overview might say, “We each have 401(k)s through our employers: Emily’s is with Charles Schwab and Jake’s is with Fidelity.” But the master directory would include the actual account numbers for those accounts, the URLs, and the names of any individuals you deal with at those institutions. Because the master directory includes sensitive information, it’s crucial to encrypt it or, if it’s a physical document, to keep it under lock and key.

3. A Plan for Your Personal Property
Most wills will state that any tangible personal property, like furniture, should be sold and the proceeds added to your estate. But if you have sentimental or valuable items that you’d like to earmark for specific individuals, such as jewelry, artwork, or special home items, you can also create a memorandum of tangible personal property that specifies who you would like to inherit those items. For your own sanity, don’t go overboard in earmarking every little thing for specific individuals; focus on those items you treasure that will also have meaning for the recipients. I found that creating such a memorandum–and matching my favorite possessions to the loved ones in my life who I thought would appreciate them the most–to be one of the most enjoyable and cathartic aspects of the whole planning process. In addition, because the memorandum isn’t technically part of your will, you can update it as you obtain or shed possessions (or loved ones!). Such a memorandum is legally binding in most states, as long as it’s mentioned in your will. But even if the memorandum isn’t legally binding, it’s probably still worth doing and assuming that your loved ones will honor it.

4. A Plan for Your Pets
If you’re an animal lover, you know that pets aren’t possessions; they’re part of the family. Thus, more and more estate plans include provisions for pets. There are a few ways to incorporate pets into an estate plan, and they’re a gradation. The gold standard, albeit one that entails costs to set up, is a pet trust. Through such a trust, you detail which pets are covered, who you’d like to care for them and how, and leave an amount of money to cover the pet’s ongoing care. Alternatively, you can use a will to specify a caretaker for your pet and leave additional assets to that person to care for the pet; the downside of this arrangement is that the person who inherits those assets isn’t legally bound to use the money for the pet’s care. At a minimum, develop at least a verbally communicated plan for caretaking for your pet if you’re unable to do so–either on a short- or long-term basis.

5. A Digital Estate Plan
Even people who think they’ve ticked off all of the usual boxes on their estate-planning to-do lists may have overlooked an increasingly important component of the process: ensuring the proper management and orderly transfer of their digital assets after they die or become disabled. Just as traditional estate planning relates to the management and transfer of financial accounts and hard assets, digital estate-planning encompasses your digital possessions, including the tangible digital devices (computers and smartphones), stored data (either on your devices or in the cloud), and online accounts such as Facebook and LinkedIn. The laws around digital assets are changing quickly, and different providers have different policies/level of access. But a key first step is taking an inventory of all of your digital accounts and storing it in a secure but accessible location. You can include it as a separate sheet on your master directory, discussed above. Discuss the existence of this document with your executor, and if you have valuable digital assets (cryptocurrency, for example) you’ll want to be sure to discuss them with your attorney and incorporate them into your formal estate plan.

6. A Plan for the End of Life
If you have an advance directive, you know that it articulates your attitudes toward life-extending care. But these documents are typically boilerplate; they don’t go into great detail on these matters. If you’d like to add additional background for your spouse, children, or other loved ones who might be making healthcare decisions on your behalf, check out “The Conversation Project.” It offers a starter kit to help you clarify your thinking and discuss these matters with your loved ones.

It’s also worthwhile to spell out your wishes and any plans you’ve made for funerals, memorials, and the disposition of your body, either verbally, in writing, or both. Maybe your wishes are simply to have your loved ones say goodbye in whatever way gives them the most peace at that time; in that case, tell them that or write that down.

7. An Ethical Will
Last but not least, consider writing or recording an ethical will that spells out your beliefs and values. In contrast with a conventional will, which lays out how you’d like your financial and physical property to be distributed, an ethical will is a way to “hand down” your belief system to your loved ones. The tradition of ethical wills began in the Jewish community, but it has gained more interest across cultures over the past decade. This is a heavy assignment, so don’t too much pressure on yourself to be profound or to write an ethical will all at once. Instead, consider starting your ethical will by jotting down your beliefs as they occur to you. To help remove some of the pressure, balance light bits of wisdom (“always keep a bottle of champagne in the refrigerator so that you can celebrate happy events big and small”) with the deeper life lessons that you’ve learned.

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