How to open an estate account (step-by-step)

When it comes time to deal with the estate of a loved one, it can be difficult to know precisely where to begin. Assuming you have already begun the process of probating the will if one was in place, the next step is usually to open an estate account. But what exactly is an estate account, and how do you open one?

Generally, an estate account is a kind of temporary bank account used for the purposes of containing the estate’s assets and funds. It is also utilized for paying estate taxes and expenses, as well as distributing any assets to the beneficiaries.

Having an estate account allows you not to commingle your personal assets and those of the estate–a highly crucial point–but more on that later.

An estate account is typically opened by the personal representative or executor of the estate, once they have been appointed. But, there are some additional steps required to open an estate account, as the process is not automatic.

An estate account is typically opened by the personal representative or executor of the estate, once they have been appointed. But, there are some additional steps required to open an estate account, as the process is not automatic.

What do you need to open an estate account?

• A copy of the death certificate - In some cases, a bank may need this to be a certified or notarized copy, so make sure to keep that in mind if you happen to not have the original on hand.
• Start the probate process - Depending on your state, you may need to bring the death certificate and a copy of the will (if applicable) to begin the probate process. Once you have been named the executor or administrator, you can proceed with the next steps.
• A Tax ID or EIN number - Also known as Employee Identification Number an EIN is a tax identification number used to identify the estate for tax purposes. If you don’t have one yet, don’t fret. It takes only a matter of minutes to acquire it online. Read our step-by-step guide on how to apply for an EIN number here.
• Other documentation - Banks will require documentation providing proof that you are in fact - the executor or personal representative of the estate. Examples of such documents would be letters of testamentary/letters of administration. Different banks require different documents in addition to these, so make sure to check with them beforehand.

1. Find a local bank - Choosing the same financial institution that the decedent used is typically the best option when it comes to choosing where to open the estate account. Keep in mind that opening an estate account outside of the decedent’s state of residence could incur additional charges.

2. Find out specifics - In addition to the points we noted above, make sure to ask your bank exactly what they require to open an estate account. Here are some example questions to help you get in the right frame of mind:

• Do you require an original copy of the will?
• Do I need to come to your location to open an account or can I complete it online/over the phone?
• Do you require a notarized copy of the death certificate?
• How much do you charge to open an estate account?

3. Open the account - Once you have your EIN and all the required documents in place, take the final step and open your estate account. While you do have the option to choose a checking or a savings account, opening a simple checking account is a more prudent choice. Unless the savings account has checking privileges, you could pay hefty fees when transferring assets around.

4. Start transferring - Once the account is opened, you can begin transferring any estate assets owned by the deceased into the new estate account. Remember that certain assets will not be part of the estate as they directly transfer to beneficiaries or surviving parties. Here are some examples:

• Life insurance policies with designated beneficiaries
• Any Joint accounts that have a right of survivorship
• Property owned jointly or transferred outside of the will (such as with the use of a ladybird deed)

Once you have transferred all the applicable assets, remember to close any of the decedent’s bank accounts once they are empty.

In all likelihood, the best bank to open an estate account with will be the decedent’s previous institution. This allows you to step into an environment that is familiar to your family (and even yourself) instead of trying to navigate the complexities of a new bank.

Also, if the decedent had any investment accounts (IRAs, for example) many banks have brokerage services that allow you to easily access these accounts as well.

Many banks also offer specialized information and services for those setting up estate accounts. While we are not recommending these banks explicitly, these are some institutions we noticed that offer estate account information:

Schwab One Estate Account

Fidelity Estate Account

Bank of America Estate Services

USAA Survivor Relations

In situations where the decedent held a joint account with a spouse or another adult, technically the account will pass over to the remaining holder due to the right of survivorship. In cases like these, do you still need to open an estate account given that you can still use the joint account? We think the better choice is to open a wholly separate estate account. Here are five reasons why:

Easier fund management

Often individuals have multiple accounts for many different purposes, especially if they owned a business or were self-employed. Rather than trying to navigate many different accounts and the many headaches that come with that, opening an estate account allows you to have a single location for all of the decedent’s funds–regardless of where they came from.

Less risk

Though it is common that the remaining joint owner of a decedent’s bank account is usually their executor, there is a higher risk of complications for two reasons.

One, if the joint owner passes away before the estate is distributed, confusion as to who those funds belong to may arise. Does the joint holder’s estate receive those funds, as they were listed on the account, or does the decedent receive them? While these questions can be answered by an attorney or an estate professional, that means more fees for the estate.

Two, if the surviving joint holder is not the executor/administrator, there can be an erosion of trust in the estate and the executor. In the eyes of the bank, the remaining joint holder legally owns all the funds (in trust for the estate) but that doesn’t mean they can’t use them improperly. Yes, the executor can pursue the joint holder for not using the funds according to the estate’s plan, but that takes more money and more time. Noticing a pattern?

No blending funds

The executor has a fiduciary duty to not commingle or mix their personal funds and the assets of the estate. When the executor is the remaining joint holder of an account that also has their own personal funds, the chance of them comingling the estate funds and their personal funds increases. Choosing to open an estate account separate from your personal accounts is arguably a safer solution.

Simpler records to track

It’s much easier to keep track of funds going in and out of a single account. Because the estate may be receiving multiple streams of income (property sales, investments, interest) throughout a long period of time, you are likely to have cleaner books to present to the court before probate is closed.

Convenient fund depositing

Somewhat related to our first point, using an estate account allows you to conveniently have a financial focal point for the estate’s many sources of income to converge in. Instead of trying to balance earned interest, sale proceeds, and dividends with multiple accounts, an estate account allows you to have one place to deposit capital.

Ready for less money-induced headaches?

If having fewer worries about the estate’s funds sounds appealing, we’re on the same page. Our estate accountants and probate professionals are experienced in all matters related to estate administration and the like. Let us help you get the estate affairs in order - contact us today, starting with a no obligation free consultation.