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Avoiding Financial Grief

financial beneficiary

Arguably, the most difficult thing that any one of us will experience in life is the death of a loved one. There is nothing you can do to prepare for the emotions that come with this type of loss. However, dealing with financial issues such as a frozen bank account can add additional stress to an already stressful situation. This is especially true if the bank account was the primary bank account used by your family or spouse to pay household and joint expenses.

Common Scenarios

It is fairly common for a frozen bank account scenario to occur when there is one main account that only lists one person as the sole signatory to the account. In this scenario, when the sole signatory to the account passes away, the bank account automatically becomes a part of the decedent’s probate assets. As such, the bank will commonly freeze the account, typically only allowing deposits but no withdrawals.

The probate process is notoriously lengthy and costly in most states. However, in a situation where the decedent’s estate is considered small and under a certain amount (as determined by state law), if the state permits it, the family may be able to take advantage of an informal probate process or a small estate affidavit, etc., to manage or distribute the decedent’s estate to their heirs. If permissible under state law, the family may have access to the bank account in a quicker timeframe, although some count contact and intervention may still be required. If a small estate affidavit can be used, the affidavit would allow the family or next of kin to collect the assets from the financial institutions holding it. This typically only applies if the assets are small (i.e., under $50,000).

How to Avoid a Frozen Bank Account

While admittedly, losing a loved one will never be easy, you can make things less stressful by planning ahead to ensure that someone has access to your bank account should you become incapacitated or pass away. Specifically, you can use some of the following strategies:

Designate a beneficiary for your account. One way that you can guarantee that your next of kin won’t have any issues accessing your bank account when you pass away is to designate a beneficiary for your account when you pass away. Using this simple option, your beneficiary could simply present the financial institution that is holding your account with their Identification and a copy of your certified death certificate and be granted access to and/or ownership of the bank account. Employing this strategy allows your account to avoid the probate process.

However, keep in mind that this strategy only allows your next of kin or named beneficiary access to your account at your death. This means that your accounts could be frozen or inaccessible should you suddenly become incapacitated and be unable to manage your finances. If you haven’t carefully planned, your spouse, family, or significant other would have to go to court and file a conservatorship proceeding to gain access to your account absent a valid financial power of attorney.

Put a Joint Owner on Your Account. When you put your next of kin or spouse on your financial account, this can prevent them from ever being locked out of your account. Specifically, when you place a joint owner on your account with rights of survivorship, the account/asset automatically becomes the sole property of the other account holder. Also, keep in mind that if you ever become incapacitated, the co-owner will still have access to the account, so you don’t have to worry about a frozen bank account or it ever becoming inaccessible.

Transfer the Account into a Revocable Living Trust.

Creating and funding a revocable living trust is one of the best ways to protect your family from the stress of a frozen bank account should you pass away or become incapacitated. Specifically, it’s a great planning tool to ensure that your family has immediate access to your assets at death or incapacity. Typically, there will be little to no wait for your family to access your account.

If you choose to transfer your bank account into a revocable living trust, you will have to retitle the name of the bank account into the name of the trust. As an alternative, you can name the trust as the pay-on-death beneficiary of the bank account. Creating a revocable trust allows the account holder to retain control over the financial account during their lifetime. However, once the original account holder passes away or is incapacitated, the designated successor trustee will be able to seamlessly gain access and control over the account.

Finally, creating a revocable living trust allows families to avoid the probate process, which is typically costly and lengthy.

Evaluating Your Current Situation

If you are uncertain about whether your spouse or family could be locked out of your account should you die or become incapacitated, answer the following questions to assess your account and develop a plan, if appropriate.

  • Are you the sole account holder?

  • Have you designated a beneficiary?

  • How is the financial account titled?

  • Do you have a revocable living trust?

  • If yes, has the owner of the financial account been changed to the trust?

We Can Assist You With Creating a Plain

Planning for our death or potential incapacity is tough and a downer. However, our experienced attorneys are here to advise and help you create the best estate plan to avoid financial grief for your family. Contact us today! For your convenience, we are available for both virtual and in-person meetings, depending on your preference.

James Dolenga, JD

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