What Happens To Bank Accounts After Death?

When someone dies, their bank accounts don’t just disappear. What happens next depends on how the accounts were set up and whether the person planned ahead. The process can be quick and simple or lengthy and complicated.

The key factor is whether the deceased person designated someone to inherit the money. Accounts with clear instructions move smoothly to the intended recipients. Those without proper planning get tied up in court proceedings that can last months.

What happens if the sole owner of a bank account passes away?

When someone dies and they’re the only owner of a bank account, three different scenarios can play out depending on what they set up beforehand.

If there’s a named beneficiary: This is the smoothest path. A beneficiary is someone specifically chosen to inherit the account. Banks call this a “payable-on-death” or POD designation. The beneficiary just needs to bring a death certificate and their ID to the bank to claim the money. No court involvement required.

If there’s a will with an executor: A will names someone called an executor to handle the deceased person’s affairs. The executor is the person legally responsible for distributing assets according to the will’s instructions. However, they can’t touch the bank account until a probate court gives permission, which requires submitting a certified death certificate and other paperwork.

If there’s a trust with a trustee: A trust is a legal arrangement that can bypass probate court entirely. The trustee is the person appointed to manage the trust’s assets. If the bank account was placed in a trust, the trustee can distribute the money according to the deceased’s wishes without court approval. Learn more about how to set up a trust here.

If there’s no planning at all: Without a beneficiary, will, or trust, the court appoints someone called an administrator to handle everything. This person distributes assets according to state law, not the deceased’s personal wishes. The process can take many months and cost thousands in legal fees.

What happens to joint accounts when someone dies?

Joint accounts typically include “rights of survivorship,” which means the surviving owner automatically keeps all the money when the other owner dies. The account continues operating normally without any interruption.

However, it’s worth checking with your bank to confirm your joint account includes these rights, as not all joint accounts are set up the same way.

The death of a joint account holder affects FDIC insurance coverage. Joint accounts normally receive up to $500,000 in protection, but that drops to $250,000 when one owner dies. The FDIC provides a six-month grace period at the higher coverage level, giving survivors time to redistribute funds to maintain full insurance protection.

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

Even without a will, a named beneficiary on the bank account still inherits the money directly. Beneficiary designations override the absence of a will.

But if there’s no will AND no beneficiary, the situation gets more complex. The state appoints an administrator to handle the estate. This person first pays any debts the deceased owed, then distributes remaining money according to state inheritance laws. In most states, the money goes to the spouse and children first, then to other relatives if there’s no immediate family.

Here’s a complete guide to what happens to all of your bank accounts after death.

How do banks discover someone died?

Banks typically learn about account holder deaths through family members or government notifications, though the process isn’t automatic.

Family member

The most common way banks find out is when family members contact them directly. Relatives can call or visit the bank to report the death and ask about next steps. The bank will typically request a death certificate and the deceased person’s Social Security number to begin the process.

If you’re handling someone’s affairs after death, you may also need “letters testamentary” — court documents that give you legal authority to act on behalf of the estate.

Social Security

Funeral directors usually notify the Social Security Administration when someone dies, which stops future Social Security payments. However, this notification doesn’t automatically inform banks about the death. Sometimes Social Security payments continue briefly after death and must be returned.

How to avoid complications

The best way to protect your loved ones is to plan ahead while you’re still alive. Simple steps can save your family months of legal hassles and thousands in court costs.

Setting up joint accounts or naming beneficiaries prevents money from getting stuck in probate court. Consider consolidating multiple accounts to make things easier for your heirs. Fewer accounts mean less paperwork and lower chances of forgotten money.

If you’re searching for accounts left by a deceased relative, check your state’s unclaimed property database. Banks must turn over inactive accounts to the state after a certain period, and you can often reclaim this money online.

What is the role of a beneficiary?

A beneficiary is simply someone you choose to inherit your bank account when you die. Think of it as writing the person’s name on the account so the bank knows exactly where the money should go. Naming a beneficiary is one of the most powerful tools for estate planning because it bypasses all the legal complications — here are five key reasons why.

Most banks don’t automatically ask if you want to name a beneficiary — you have to request the form and fill it out yourself. This simple step can save your family significant time and money.

Beneficiary rules

The beneficiary designation only takes effect when you die. While you’re alive, the beneficiary has no access to your account and no say in how you use the money.

You can change or remove beneficiaries anytime by filling out a new form with your bank. Life changes like marriage, divorce, or the birth of children are good times to review and update these designations.

For joint accounts, the surviving owner gets the money first, even if there’s a named beneficiary. The beneficiary only inherits if all account owners have died. If your beneficiary is under 18 when you die, the court will appoint someone to manage the money until they reach adulthood.

Bottom line

A little planning now can save your family significant stress during an already difficult time. The simplest step is naming beneficiaries on all your accounts — a process that takes just a few minutes but can save months of legal complications.

If you haven’t set up beneficiaries yet, contact your bank to request the forms. While you’re at it, consider whether a high-yield savings account or CD might help your money grow more while you’re alive, giving your beneficiaries even more to inherit.

For more complex estates, work with an attorney to create a will and potentially a trust. These tools ensure your wishes are followed and can help minimize taxes and legal fees for your survivors.