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. However, dealing with the financial stress of frozen bank accounts can exacerbate the stress. Without proper planning, your significant other could struggle to gain access to your accounts, even those which pay for joint or household expenses.
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 tedious. In more favorable situations, if the value of the estate is under a certain amount (as determined by state law), 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 that is the case, access to accounts may be granted in a more timely manner; however, it still requires some interaction with the court. In Texas, there is affidavit process for collecting assets from financial instructions if the amount is very small.
Avoiding Frozen Bank Accounts
Even though the grief of death cannot be avoiding, you can employ several of the following strategies to reduce the chances of your bank account freezing and putting more stress on your loved ones:
Identify a Payable-on-Death Beneficiary:
The first way to avoid this scenario is to name your significant other as the payable-on-death beneficiary. This strategy allows your significant other to gain ownership of the account simply by presenting identification and your death certificate to the bank. Using the payable-on-death beneficiary strategy also ensures that the account stays out of your probate estate; this will reduce delays and give your significant other easier access to the funds.
One downside to this strategy, however, is that it only creates access at the time of your death. Should you become incapacitated and unable to manage your accounts and finances, your significant other will have to go through a different court process, known as conservatorship, if you do not have a properly signed financial power of attorney.
Jointly Own the Account
Joint ownership of bank accounts can eliminate instances where your significant other is locked out of an account. In most instances involving joint ownership, the right of survivorship is likely, but not necessarily, applicable. The right of survivorship states that upon death, the interest owned by the deceased party automatically becomes the property of the remaining owner.
Place the Account in a Revocable Living Trust
One of the most effective methods to avoid the freezing of a bank account is to create a trust. Following the creation of your trust, place the account in question under the name of that trust. There are two ways to place a bank account in a trust: 1) retitle the account in the name of the newly created trust or, 2) name the trust as the pay-on-death beneficiary. Revocable trusts allow the original account owner, who is likely the initial trustee, to retain sole control of the account during their lifetime. Upon death or incapacity, the named successor trustee can seamlessly step in and gain access to the account in the name of the trust.
Accessing Your Accounts’ Current Statuses
If you are unsure whether your significant other could be placed in this scenario, please consider the following questions:
- 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? If so, has your bank account been retitled 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 experience team is here to help you carefully craft the best plan for you and your loved ones.
Give Us a Call
Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us.
