What is an Estate Account? 5 Reasons to Open an Estate Account
When someone dies, the estate must be taken care of and distributed to the heirs. This can be a lengthy process, known as probate. While there are many challenges to getting through the process, one important step is to have an estate account. You should understand what an estate account is and the reasons to have one to help you in this process.
What is an Estate Account?
In simple terms, an estate account is a bank account that is in the estate’s name rather than in the name of an individual or company. It’s a temporary account that allows the money of the estate to be used to pay for expenses associated with the management of the estate and distribution. For example, the executor may pay an appraiser out of the estate account. This estate account is a checking account rather than a savings account. Any other savings and checking account should be transferred to this account.
Opening Probate and Choosing an Executor
Before setting up an estate account, the first step in handling the estate of a deceased person is to open probate and appoint an executor. The executor is the person who will oversee the tasks associated with dispersing the estate.
Someone will need to file a petition to open probate with the county court where the decedent lived or held property. They will also file the will with the court, which is used as the basis for probate. The court will set a hearing where it will determine the validity of the will and appoint or approve
Someone to act as an executor or personal representative. If the will named someone for this role, the court would approve the person. If the will doesn’t mention someone or no will exists, the court must appoint someone based on the state’s probate laws.
Once the executor is approved, the court gives them documents that prove they have the authority to act on behalf of the estate. They will take these documents, also referred to as letters testamentary, anytime they need to gain access to the assets of the deceased.
If you have any questions about setting up an estate account, you can seek legal advice from a probate attorney. They can help you get an account set up correctly.
How to Open an Estate Account
While it’s not required as part of probate, one of the first steps for the executor should be to open an estate account. This is a fairly straightforward procedure, which requires the executor to provide a copy of the death certificate or other documentation showing they have the authority to open the account. They will apply for an employer identification number for the estate.
Reasons to Open an Estate Account
Even if you know how to open an estate account, you may not see a reason why. However, it can be beneficial in many ways as you work to get through the probate process.
Easier Access to Funds
Instead of having multiple accounts to manage and keep track of, you could put all the assets into one account. It’s easier to manage and simpler to gain access to for estate administration, especially if other assets have been frozen.
A Place to Deposit Payments
Sometimes the estate may receive checks, stock dividends, interest, rental income, or other forms of payment made to the deceased person after their death. With an estate account, the executor can simply endorse the checks and deposit money into the account.
Simpler Record Keeping
It’s simpler to keep track of money received and money spent with one single account. An estate account allows you to pay all debts from one place. It also protects the executor from liability if all payments are made out of an account for the estate rather than paying for anything out of their own personal account.
Many states require an accounting record of all transactions made for the estate before probate can be closed. It’s much easier for the executor to prepare an accounting if all funds went through the estate account.
No Commingling of Funds
As the executor goes about their duties for the estate, they want to be protected from any threat of liability. They don’t want to risk commingling their own personal funds with that of the estate, which is why an estate account is a safer option.
Protect the Estate
Many accounts are co-owned by the deceased person and their spouse or another family member. When they die, the family member still has ownership of the joint account. This may seem ideal for them because they can continue to pay bills and receive income out of the account.
This issue can be a challenge for other heirs who won’t have access to the account. They may fear that the surviving joint account holder will keep the estate funds for themselves instead of distributing it as requested by the decedent’s will. Any debts for the surviving owner can be filed as claims against the account. An estate account prevents these issues and allows the dispersal of the estate to go much more smoothly. Protecting the estate begins before the person passes away with estate planning.
Does an Estate Account Mean No Reason to Probate Estate Assets?
Having an estate account doesn’t prevent the estate from being required to go through probate court. It does help protect the estate assets and make the probate process move along faster. When the money market account, savings account, and checking accounts are all combined into a separate bank account, it makes things simpler.
The temporary bank account will serve as the central place for all estate accounts to merge, ensuring the estate’s beneficiaries have equal access to their inheritance.
If you need assistance with setting up an estate account or any other aspect of probate and dispersing an estate, you can contact a probate law firm for assistance and legal advice.