Posted by:  The Life and Legacy Planning Group

The death of a loved one is one of the most difficult times in a person’s life. Nothing can truly prepare you 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. The frustration is especially distressing if the frozen account was the primary source for paying 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 long and 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. Another option that many states provide is an affidavit process (Small Estate Affidavit in Illinois) for collecting assets from financial institutions when the amounts are very small.

Avoiding Frozen Bank Accounts
Even though the grief of death cannot be avoided, you can employ several strategies to reduce the chances of your loved one being frozen out of a bank account that must be accessed immediately upon your incapacity or death.

  • Set up a transfer on death account. One of the simplest ways to avoid issues accessing a bank account belonging to the deceased is to ensure that the account is titled as a transfer-on-death account and identifies your significant other as the transfer-on-death beneficiary. With this strategy, your significant other can gain ownership of the account simply by presenting identification and your death certificate to the bank. This allows the account to stay out of your probate estate, reducing delays and providing easier access. One downside to this strategy, however, is that it only creates access at your death. Should you become incapacitated and unable to manage your accounts and finances, your significant other may end up having to go through a different court process, known as a conservatorship, unless there is a properly signed financial power of attorney. Another downside is that such an account by-passes your estate plan, and will be distributed to the transfer-on-death beneficiary regardless of what your Will or Living Trust says.
  • Jointly own the account. Jointly owning an account can help eliminate instances where a significant other is locked out of an account, because both parties jointly own the account. Additionally, in most instances where there is joint ownership, the right of survivorship is likely, but not necessarily, applicable. The right of survivorship essentially states that upon death, the interest owned by the deceased party automatically becomes the property of the remaining owner. Again, a join account likely will also by-pass your other estate planning documents.
  • Place the account in a Revocable Living Trust. Creating a Living Trust and transferring the account in question to that Living Trust is one of the most effective methods for protecting your significant other from the frustration and delay associated with a frozen bank account. Placing the account in a Living Trust requires that the account be retitled in the name of the newly created Living Trust or, alternatively, naming the Living Trust `as the transfer-on-death beneficiary. Using a Living Trust allows the original account owner, who is likely also the initial trustee, to retain sole control of the account during the owner’s lifetime. However, upon death or incapacity, the named successor trustee can seamlessly step in and gain access to the account in the Living Trust. Most importantly, using a Living Trust allows the items within the trust to avoid the lengthy and costly probate process. Finally, the use of a Living Trust as a planning tool allows access to the account at incapacity or death. There is no wait to gain access to funds necessary for maintaining the household.

Assessing Your Current Status
If you are unsure whether your significant other could be left struggling to access your account at the time of your death or incapacity, please consider the following questions to help you understand your accounts and develop a plan:

  • Who owns the account in question?
  • Have you identified and formally named transfer-on-death beneficiaries?
  • How is the bank account currently titled?
  • Do you have a Living Trust and has the title to your bank account been changed to the name of the Living 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 experienced team of dedicated attorneys is here to help you carefully craft the best plan for the people you care for the most. We are available for in-person and virtual meetings, whichever you prefer.