How and When To Open an Estate Account

In this article...
  • Learn how to open an estate account. Find out what makes estate accounts different from other bank accounts, and find out why you might want to open one.

After a person dies, they often leave behind assets for an executor to distribute. Estate accounts are a type of bank account that can help streamline this process. Establishing one requires special paperwork; to close probate faster, it's helpful to learn how to open an estate account.

How To Open an Estate Account

If you've been named the executor or administrator of an estate, you're legally empowered to open an estate account. The process requires specific documentation, so make sure you're prepared before you head to the bank.

1. Begin Probate on the Estate

Before you can take over as executor, you'll need to initiate the probate process. To do so, bring a copy of the death certificate and the will to probate court. The court will schedule a hearing.

Once the court confirms you as the executor, they'll issue you documents — the letters testamentary — to prove you have the authority to act on behalf of the estate.

2. Set up a Tax ID for the Estate

When you have control over the estate, you'll need to get a tax ID number for the estate. In the eyes of the Internal Revenue Service (IRS), the estate is an entity; to that end, it requires an employer identification number. You can apply online at the IRS website or by mail using Form SS-4.

3. Open the Estate Account

Gather your letters testamentary, EIN and identification, and visit a bank to open an estate account. This account should be located in the state where the deceased lived. In most cases, a checking account is the most convenient option, since it allows you to write checks as needed. Once the account is ready to go, you can start using it to manage the estate.

What Is an Estate Account?

An estate account is a special type of bank account that contains the assets of a deceased person's estate. Typically, estate accounts are temporary; after the executor distributes all the estate's funds, the account is no longer needed.

Estate accounts are usually registered in two names: the estate of the deceased and the executor. This enables you to deposit funds belonging to the deceased; it also allows you to distribute money for the purposes of the estate.

When Do You Need an Estate Account?

If someone dies, and you're named the executor or the personal representative of the estate, you might open an estate account. It acts as a central hub for all the assets, so they're easier to manage, track and distribute.

Once you've opened an estate account, you can start moving money into it from other sources. These sources might include:

  • Cash
  • Checking accounts
  • Savings accounts
  • Investments
  • Proceeds from the sale of land or property

With the estate account, you're free to settle any debts owed by the estate. You'll likely need to pay estate taxes, filing fees, outstanding bills and legal fees. When all the debts are taken care of, you can use the remaining funds to pay inheritances as designated in the will.

Benefits of Estate Accounts

Estate management can be complicated, especially if there are disputes among heirs. Estate accounts offer a number of benefits that can streamline the process.

Transparent Accounting

When you're the executor of an estate, it's critical to keep your finances separate from estate finances for tax and legal purposes. An estate account creates a clear record of every transaction, so you can account for every penny.

Place for Deposits

When a person dies, their bank freezes their personal accounts. If the person continues to receive income from investments or other sources, the money has nowhere to go. That's where an estate account comes in handy — since it contains the name of the deceased, any posthumous income can legally be deposited into the account.

Fair Distribution of Assets

Sometimes, a parent will place an adult child as a joint account holder on a checking account. After the parent dies, the child can still access the money. This scenario can create disputes when it comes to distributing the assets, particularly if the executor is a different person. With an estate account, all funds are accounted for, so they're easier for the executor to distribute according to the deceased's wishes.

When to Close an Estate Account

After you've completed all the estate's business and distributed all funds, you'll need to close the estate account. Typically, this happens after probate is completed. Call the bank for specific requirements; in most cases, you can simply fill out a form.

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