The death of a loved one is one of the most difficult times in a person's life. Nothing can truly prepare a person for such a loss. In these moments, dealing with the financial stress of frozen bank accounts only compounds the stress – especially if the account is a primary source for paying joint or household expenses. With proper planning, however, you can provide a gift to your significant other and prevent unnecessary challenges in accessing your accounts.
Common Scenario
The frozen bank account situation occurs most commonly in instances where all bills are paid out of a single account that lists only one significant other as the account owner. When the account owner dies, the bank account becomes part of the decedent's probate estate, resulting in stricter rules for access. In most instances, banks will allow deposits to continue; however, withdrawals are often prohibited.
The probate process can be very long and tedious. In Tennessee and other states, if the value of the estate is under a certain amount you may be able to utilize a small estate or informal probate process to eliminate some of the time-consuming requirements of a formal probate process. If so, access to accounts may be granted more quickly, but some interaction with the court will still be required. Another option that many states provide is an affidavit process for collecting assets from financial institutions when the amounts are very small.
Avoiding Frozen Bank Accounts
Even though the grief of death cannot be avoided, you can employ several strategies to reduce the chances of your loved one being frozen out of a bank account that must be accessed immediately upon your incapacity or death.
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Identify a payable-on-death beneficiary
One of the simplest ways to avoid issues accessing a bank account belonging to the deceased is to ensure that the account has a payable-on-death beneficiary and identifies your significant other as that beneficiary. With this strategy, your significant other can gain ownership of the account simply by presenting identification and your death certificate to the bank. This allows the account to stay out of your probate estate, reducing delays and providing easier access. One downside to this strategy, however, is that it only creates access at your death. Should you become incapacitated and unable to manage your accounts and finances, your significant other may end up having to go through a different court process, known as a conservatorship, unless there is a properly signed financial power of attorney.
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Jointly own the account
Jointly owning an account can help eliminate instances where a significant other is locked out of an account, because both parties jointly own the account. Additionally, in most instances where there is joint ownership, the right of survivorship is likely, but not necessarily, applicable. The right of survivorship essentially states that upon death, the interest owned by the deceased party automatically becomes the property of the remaining owner.
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Place the account in a revocable living trust
Creating a trust and placing the account in question in that trust is one of the most effective methods for protecting your significant other from the frustration and delay associated with a frozen bank account. Placing the account in a trust requires that the account be retitled in the name of the newly created trust or, alternatively, naming the trust as the pay-on-death beneficiary. Using a revocable trust allows the original account owner, who is likely also the initial trustee, to retain sole control of the account during the owner's lifetime. However, upon death or incapacity, the named successor trustee can seamlessly step in and gain access to the account in the trust. There is no wait to gain access to funds necessary for maintaining the household. Most importantly, using a trust allows the items within the trust to avoid the lengthy and costly probate process.
Assessing Your Current Status
If you are unsure whether your significant other could be left struggling to access your accounts at the time of your death or incapacity, consider the following questions to help you understand your accounts and develop a plan:
- Who owns the account in question?
- Have you identified and formally named pay-on-death beneficiaries?
- How is the bank account currently titled?
- Do you have a trust and has the title to your bank account been changed to the name of the trust?
We Can Help You Plan
Planning for difficult situations like death or incapacity is never easy, but you do not have to do it alone. Our experienced team at James D. Foster, Attorney at Law, PLLC, is here to help you carefully craft the best plan for you and the people you care for the most. Contact us today.
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Read More:
What is Estate Planning? An Estate Planning Overview
Estate Planning Basics & Benefits
Wills Versus Trusts: How do I know What I Need?
The Probate Process in Tennessee
Estate Planning for Business Owners
Special Estate Planning Considerations for Art & Other Collections
