Do You Need an Estate Checking Account?

When someone passes away, the executor of the estate is responsible for distributing the assets. Property, furnishings and other tangible items are relatively easy to distribute to heirs. However, how do you pay taxes, expenses and debts of the estate? An estate checking account is a temporary bank account that holds the estate’s money and enables the executor to administer your estate. Consider working with a financial advisor as you build and manage your own estate plan.

How Does an Estate Checking Account Work?

An estate checking account is a temporary account used by the executor of your estate to distribute your monetary assets and pay the estate’s bills. Once the estate receives its employer identification number (EIN) from the IRS, the executor can open an estate checking account. Although your estate may not be a business, this is the taxpayer identification number that the estate needs to file taxes and open accounts. You can apply for an EIN for free from the IRS online, by fax or by mail.

An estate checking account receives funds from the deceased’s existing bank accounts, proceeds from the sale of assets and monies owed to the deceased. From this account, payments are made to cover expenses, pay taxes, settle debts and distribute the remainder to your heirs.

It is very important to maintain accurate records of every transaction. This protects the executor of the estate and ensures that all beneficiaries receive their intended share of the estate.

Having an estate checking account is the appropriate method to handle an estate’s finances. Existing accounts from the deceased should not process ongoing transactions. Generally, the bank closes or freezes these accounts once it knows that the owner passed away. An estate checking account eliminates confusion about who is receiving the money and paying bills on behalf of the estate. It provides a fresh start on the estate’s finances to ensure that pre- and post-death transactions are completely separate.

Although an executor may pay for some of the estate’s expenses out of pocket, with reimbursement coming from the estate later, this is not ideal. In some cases, however, it is completely unavoidable; such as immediately after death before you can create an estate account.

Writing checks to yourself can give the appearance of self-dealing, fraud or other nefarious intentions, even if your actions were completely legitimate. Paying all expenses and other distributions through the estate account reduces the opportunity for conspicuous transactions.

How to Open an Estate Checking Account

Estate checking accounts are the same account as a standard checking account from a bank. However, the bank titles the account to reflect that it represents the assets of an estate. The executor has authorization to conduct business on behalf of the estate.

To open an estate checking account, you’ll need to do the following:

begin the probate process
obtain a copy of the will and/or trust
receive the estate’s EIN
collect documents verifying that you may handle the estate’s finances
provide a copy of the death certificate
make initial deposit

Because an estate account is just like any other bank checking account, it will operate under the same rules. The account may require a minimum deposit amount to open the account. Plus, there may be requirements in order to waive the monthly service charge, such as a minimum average daily balance. Other fees may also apply, such as ordering checks or receiving a wire transfer.

Bottom Line

An estate account is an integral part estate distribution process. It’s a temporary account that the executor uses to receive and distribute funds on behalf of the estate. In order to open an estate account, the executor must provide proof that they are legally able to do so. Once the account is open, it operates like any other checking account and the executor should operate with caution to ensure that they don’t commingle personal funds with those of the estate.

Tips for Estate Planning

Planning for how your estate is distributed after your death is an important task. Developing a plan with a financial advisor that you know and trust can make the transition easier for your loved ones. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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