What happens to bank accounts when someone passes away depends on several factors, including the type of account ownership, if there were any joint account owners, if there were any designated beneficiaries, how much was in the account, if there are any debts owed, and whether or not the deceased person had a will or other estate plan.
We will try to touch on each of the possibilities and what you need to do in each case to access or claim the funds in the account.
What if the Bank Account Only Has One Owner?
If the bank account is solely in the name of the deceased person, that account will become part of the person’s probate estate, with some exceptions.
The account will typically be frozen by the bank until the proper steps are taken. Sometimes the bank will not freeze the account until they are informed of the death, so contact the bank and provide a death certificate as soon as possible to avoid misuse of the funds by other family members or another individual.
If the account has to go through the probate process, how the funds are distributed depends on if there is a Will or not, as well as the Arkansas probate laws.
During probate, funds may first be used to pay last taxes, expenses of probate administration, and creditor claims before the remainder of the account is distributed to the heirs or estate beneficiaries.
This can be a long process which requires a creditor claims period in the probate. Unless approved by the Court, no funds from the account should be spent prior to the creditor claims period ending and prior to approval of the final distribution plan.
What are Beneficiary Designations?
The exceptions to any bank accounts becoming part of the estate plan are when there is a Payable on Death (POD) or Transfer on Death (TOD) designated beneficiary on the account. This is a person listed by the account owner to receive the funds upon the owner’s death.
If there is a named beneficiary, then that person may contact the bank and fill out the required paperwork to have the funds transferred to them.
Accounts with beneficiary designations pass directly to the beneficiary and do not ever become part of the probate estate or subject to the probate estate procedures.
If there is no POD or TOD designations, then the family will have to jump through a few more hoops.
Before a bank releases any information about the deceased person’s bank account, they will want to be provided probate documents to show that the person requesting the information actually has the authority from the court to do so.
In Arkansas, if the estate is less than $100,000 (this is the total estate, not just the account balance) you can file an Affidavit for Collection of Small Estate listing the deceased person’s bank account information which can then be used to gain access to the account.
If the estate is over $100,000 you must file a full probate action and get an Executor of the estate appointed by the Court. The bank will then request the appropriate court documents to allow the executor access.
What if the Bank Accounts have a Joint Owner?
If a bank account has joint owners, meaning that there are two names as co-owners, then the survivor automatically becomes the sole owner upon the death of the other owner.
In the case of joint account ownership, it passes outright to the surviving owner without the need to open the probate process and the funds are not subject to any probate action.
This is true even if the person that died has contributed all or the majority of the funds in the account.
There are some exceptions if the joint owner is only on the account as a Power of Attorney or other similar duty.
But overall, having a joint ownership avoids probate and transfers the funds directly to that other account owner.
What Steps Do You Need to Take to Claim a Bank Account?
First, you will need to notify the bank of the death and provide a death certificate.
Once the bank is aware of the death, they will then be able to transfer ownership pursuant to a joint account ownership or beneficiary designation.
If there is not a joint owner or beneficiary, the next step is to open a probate action and become the executor of the deceased’s estate.
Once you have access to the account, make sure there are no outstanding debts, taxes, or other claims that need to be take care of prior to distributing the funds.
If the probate court is involved, make sure that you have approval before using funds to avoid any liability.
Because of the complexity of the probate process, it is usually best practice to contact an estate planning attorney who can walk you through the exact steps needed and obtain the appropriate court documents.