What Happens to Money in a Bank Account After Someone Dies?

Where Does Your Bank Money Go After Death?

When someone dies, the money in their bank account does not simply disappear. But what happens next can depend on how the account was titled, whether there is a beneficiary, and whether the estate goes through probate.

The Money Does Not Automatically Go to the Bank

When a bank learns that an account holder has died, it generally places restrictions on an individually owned account. The bank does not become the owner of the money. Instead, the funds generally become part of the deceased person’s estate and must be distributed according to applicable law and the person’s estate-planning documents. This can create a difficult situation when family members know money exists in an account but do not have access to it. A San Diego woman found herself dealing with exactly that problem after the death of someone close to her. She wanted to know what would happen to money left in a bank account when nobody else was listed as an account holder or otherwise had immediate access.

It Depends on How the Account Was Set Up

The first question is whether the account was held individually or jointly. A joint bank account can operate differently because the surviving account holder may have rights to the funds, depending on the type of joint ownership and state law. In many cases, a joint account includes a right of survivorship, meaning the surviving owner can continue accessing the money after the other owner dies. An individual account is different. If the deceased person was the only owner, another person generally cannot simply walk into the bank and withdraw the money because they are a relative. The bank will typically require documentation establishing who has legal authority to handle the deceased person’s financial affairs.

A Beneficiary Can Change the Process

Some bank accounts allow the owner to name a payable-on-death, or POD, beneficiary. If properly established, the beneficiary may be able to receive the funds after the account holder’s death without the money passing through the traditional probate process. The beneficiary generally needs to provide documentation, including proof of the account holder’s death and identification, before the bank releases the funds. This is one reason estate-planning experts often encourage people to review beneficiary designations periodically. A will alone does not necessarily control every financial account.

What If There Is No Beneficiary?

If an individual bank account has no surviving joint owner and no payable-on-death beneficiary, the money generally becomes part of the deceased person’s estate. At that point, the person legally authorized to administer the estate may need to work with the bank. Depending on the circumstances and state law, that person could be an executor named in a will or a personal representative appointed by a court. If there is no will, state intestacy laws generally determine who is entitled to inherit the money.

What If Nobody Knows the Account Exists?

Money can become particularly difficult to locate when family members do not know where the deceased person banked. Banks are required to follow procedures involving dormant or abandoned accounts. If an account remains inactive for a legally specified period and the institution cannot establish contact with the owner or appropriate representative, the funds can eventually be turned over to the state’s unclaimed-property program. That does not necessarily mean the money is lost forever. The rightful owner or heir may be able to claim it through the state’s unclaimed-property system.

Family Members Cannot Simply Take the Money

One of the biggest misconceptions is that being a spouse, child or other relative automatically gives someone access to a deceased person’s individual bank account. It generally does not. The bank has a responsibility to protect the account and release funds only to someone with the appropriate legal authority or beneficiary rights. Attempting to withdraw money using the deceased person’s debit card, online banking credentials or other access methods can create serious legal problems.

The Best Protection Is Planning Ahead

The simplest way to prevent confusion is to make financial arrangements before death. Account holders can keep beneficiaries up to date, establish appropriate joint ownership when it makes sense, maintain an estate plan and make sure trusted family members know where important financial information can be found. For families dealing with a death, the most important first step is usually determining exactly how the account was titled and whether a beneficiary was named. From there, the bank, estate attorney or probate court can help determine who has authority to access and distribute the funds. Ultimately, money left behind in a bank account does not vanish simply because the account holder dies. But without the proper beneficiary designation, joint ownership or legal authority, accessing those funds can become a complicated process.