When someone passes away, their bank accounts and other assets are distributed to beneficiaries named in their will or designated on specific accounts. A common question that arises is whether a beneficiary can withdraw money from the deceased person’s bank account before the estate is settled. The answer depends on the type of account and beneficiary designation.
Joint Accounts
If the bank account is a joint account held by the deceased and a beneficiary, the beneficiary can withdraw money immediately after the account holder passes away. With a joint account, the beneficiaries are co-owners of the account with a right of survivorship. This means that if one owner dies, the surviving co-owner automatically becomes the sole owner of the account balance. The funds do not have to go through probate and can be accessed right away by the surviving account holder.
It is important to note that joint account holders have equal ownership rights over the funds during their lifetimes. If the deceased made any deposits or withdrawals from a joint account near the end of their life, the beneficiary who withdrew money after their death may need to account for those funds during estate settlement. But the beneficiary has full legal rights to withdraw money from the joint account upon the death of their co-owner.
Payable on Death Accounts
Accounts can also have payable on death (POD) or transfer on death (TOD) beneficiary designations. With POD/TOD accounts, the beneficiary cannot withdraw money until after probate is opened and the funds are retitled in the beneficiary’s name. The account funds must go through the probate process before being distributed to the named beneficiary.
The probate process validates the deceased person’s will, pays any outstanding taxes and debts, and ensures proper distribution of assets. Only after the probate court judges validate the will and authorize distribution can the beneficiary access money in a POD or TOD account. Attempting to withdraw funds before probate settlement could constitute fraud or theft.
Trust Accounts
If bank account funds are held in a trust, distribution depends on the trust terms. A revocable living trust allows the account owner to retain control over the assets while living, with the funds passing directly to beneficiaries upon death without probate. Beneficiaries of a revocable trust can access funds immediately as successor trustees after the grantor dies.
With an irrevocable trust, the original account owner gives up control over the assets during their lifetime. Beneficiaries named in the irrevocable trust agreement can access funds after the grantor’s death without waiting for probate. But the trust terms dictate how and when beneficiaries can withdraw money from accounts held in an irrevocable trust.
Steps for Beneficiaries Accessing Accounts
To withdraw money from an account after someone dies, the beneficiary will typically need to take the following steps:
- Obtain certified copies of the death certificate
- Present proof of identity and beneficiary status
- File necessary paperwork with the help of an attorney
- Receive approval from probate court for distribution, if required
- Work with bank representatives to retitle or close accounts
The bank will likely freeze the account once they learn about the original owner’s death. Beneficiaries cannot access funds until the required probate procedures are completed and they receive legal approval and any new account paperwork from the bank.
Tax Implications
Withdrawing money from inherited accounts could have tax consequences as well. Beneficiaries should watch for 1099-INT forms reporting bank account interest if they earned significant interest on the accounts in the year the owner died. The interest may be taxable income to the beneficiary.
If beneficiaries inherit a large sum from bank accounts, they may owe estate taxes at the state and/or federal level. An accountant can advise them on any taxes owed based on the total value of assets inherited.
Fraudulent Activity
In some cases, beneficiaries commit fraud by trying to hide accounts and withdraw money that they are not entitled to receive. This type of fraudulent activity can result in serious consequences:
- Having to repay money unlawfully withdrawn
- Paying penalties and interest
- Legal charges for fraud or theft
- Removal as a beneficiary
- Disinheritance from the estate
- Criminal prosecution
Beneficiaries who intentionally try to conceal accounts or assets for personal gain are engaging in fraudulent behavior. Even if they are legally entitled to a share of the estate, secretly withdrawing funds before probate could constitute fraud or theft. Any beneficiary who believes an estate is being distributed unlawfully should consult with an attorney.
Contesting the Will
In some cases, beneficiaries may suspect unfair distribution or believe they deserve more inheritance money than they received. If beneficiaries wish to contest the will or asset distribution, they should not withdraw any funds until disputing the matter legally. Beneficiaries could be required to repay accounts they withdrew money from if a judge later rules they were not entitled to those assets. It is best to consult an attorney and settle any disputes through proper legal proceedings.
When Can a Beneficiary Legally Withdraw Funds?
The table below summarizes when beneficiaries can legally withdraw money from various account types:
| Account Type | Can Beneficiary Withdraw Funds Immediately? |
|---|---|
| Joint account | Yes |
| POD account | No, must wait for probate |
| Revocable living trust | Yes, as successor trustee |
| Irrevocable trust | Depends on trust terms |
Alternatives to Withdrawing Funds
Rather than immediately withdrawing cash from inherited accounts, beneficiaries have some other options to consider:
- Transfer funds to new account: Allows beneficiary to retain control of assets while keeping funds separate from their own accounts during estate settlement.
- Pay debts/expenses from account: Can request checks payable directly to utility companies, mortgage lender, etc. for the deceased person’s outstanding payments due.
- Invest funds: Can consult a financial advisor to discuss investing some or all of an inheritance for greater long-term growth potential.
- Donate funds: May choose to donate some inherited assets to charities in memory of the deceased, which could provide tax benefits.
By avoiding simply cashing out inherited accounts, beneficiaries may have more options to reduce taxes, retain control over assets, and determine the wisest use of newly acquired funds.
Getting Legal and Tax Advice
Settling an estate and accessing inherited assets can be extremely complicated. All beneficiaries should consider consulting with an attorney and accountant for guidance on the legal and tax implications.
An attorney can help beneficiaries:
- Understand rights to withdraw or transfer funds
- Navigate the probate process
- File necessary legal paperwork
- Avoid allegations of fraud
- Contest a will or asset distribution if warranted
Meanwhile, an accountant can advise beneficiaries on topics such as:
- Reporting interest income
- Taxability of withdrawals
- Filing estate tax returns
- Inheritance and estate tax liabilities
By seeking proper legal and tax guidance, beneficiaries can avoid missteps and ensure full compliance with all requirements when accessing inherited bank accounts.
Conclusion
The ability for a beneficiary to withdraw money from a deceased person’s bank account depends on the account type and titling. Generally, beneficiaries can immediately access joint accounts but must wait for probate to receive funds from POD accounts. Trust accounts are distributed according to the specific trust terms. Beneficiaries should be aware of the legal and tax implications of withdrawing inherited funds and seek expert advice to ensure proper estate administration.