What happens to a bank account when someone dies?

Dealing with the death of a loved one is always going to be hard.

In this guide we explain what happens to someone's bank account and finances when they die, and what steps you need to take to get their financial affairs in order.

How to manage the finances of a deceased person

Aside from arranging the funeral, there are a number of steps you need to take before you can deal with the deceased’s financial affairs:

  1. Register the death

  2. Apply for probate

  3. Contact banks, utility companies and insurers

  4. Remember inheritance tax

1. Register the death

When someone dies, the first step is to register their death. You’ll need to do this within 5 days if you live in England, Wales or Northern Ireland or 8 days if you live in Scotland.

Registering the death is the only way to get a death certificate, which you’ll need before you can access the bank accounts of the person who died.

2. Apply for probate

If the deceased left a will, they should have named an executor or administrator who will be in charge of handling the estate – that’s property, savings and belongings.

Once the executor has the original copies of the will and the death certificate (no photocopies allowed), they can apply for probate.

If someone dies without a will, the application process is the same, but you’ll get ‘letters of administration’ rather than a ‘grant of probate’.

What is probate?

Probate is the entire process for legally dealing with a deceased person's estate.

If the deceased's estate was jointly owned with a spouse or civil partner, probate may not be required.

 3. Contact banks, utility companies and insurers

Now you have the official will, death certificate and grant of probate (or letters of administration if there was no will), you can inform any banks, building societies, utility companies and insurers of the death.

Closing a bank account after someone dies

Once you’ve notified the bank, the deceased’s bank account will be frozen and any payments going in and out of the account, such as direct debits and standing orders, will be stopped. 

The bank will let you know about the next steps but you are likely to be asked for two forms of identification such as your passport or driving licence, or a proof of address, as well as a copy of the will and the death certificate. This is so that the bank can begin the formal process of releasing funds and closing the bank account.  

Taking money out of a deceased’s bank account

Keep in mind that most banks won’t allow you to withdraw money from an open account of someone who has died (unless you are the other person named on a joint account) before you have been granted probate (or have a letter of administration). Some banks may release money without a grant, but this is usually capped at somewhere between £15,000 and £50,000 depending on the bank.

If you are waiting for a grant of probate, the bank may let you access money in the account to pay for expenses relating to the death such as the funeral or probate fees.  

As the executor, it is down to you to withdraw any money and distribute it to the beneficiaries according to the will. A solicitor will be able to help you with the process.

If someone died without leaving a will, rules of intestacy apply.

How to find lost bank accounts of the deceased

There is, of course, the real possibility you do not know the details of all the deceased’s bank accounts or that some details have been lost. In that case, there are online tools that can help you discover lost accounts.

Debts

Debts such as mortgages, loans or credit cards are not passed on to inheritors, but must be paid off before the remainder of the estate is distributed as per the instructions laid out in the will. This is providing there are enough assets to repay the debts - if there are not, the debts (or some of them) will be written off. 

If, after the debts have been repaid, there is estate left to share out, you’ll need to place a notice in The Gazette – the official public record of deceased estates. If you fail to do this and a creditor later comes forward with a claim against the estate, you might personally be liable for the unidentified debt.

Two months and one day after the notice is published and provided no other creditors have come forward, you can distribute the remaining estate amongst the beneficiaries.

Any debts taken out in a joint name become the sole responsibility of the survivor when the other person dies.

Insurance companies

Any open insurance policies need to be cancelled – remember, unless a claim is made, insurance companies do not pay out, so you will not recoup any payments the deceased made as part of their policies.

However, if they had any kind of life insurance (including mortgage life insurance and PPI) you can make a claim.

Pensions

If the deceased was receiving their State Pension before they died, contact the Pension Service to stop the payments.

You may be able to claim their personal or workplace pensions (if they had any), but how much you’re entitled to largely depends on the type of pension they had.

Trusts

If a bank account is held in a lifetime trust, the successor trustee named in the trust document can present the death certificate and a copy of the trust to the bank to take it over.

4. Remember inheritance tax

As a fourth step, you’ll need to estimate the value of the estate and report your findings to HMRC to determine whether or not inheritance tax (IHT) is owed.

IHT won’t be charged if the inheritance is left to a spouse, civil partner, charity, or amateur sports club – otherwise, IHT will apply on any estates valued at over £325,000.

For the 2020/2021 tax year, the minimum tax-free threshold increases to £500,000 if the estate was left to children or grandchildren, including step and adopted children.

It is usually the estate – not you as the executor and/or inheritor – who pays inheritance tax, which is due 6 months after the death.

How to get your affairs in order today

While much of the advice in this guide is about how to manage someone else’s finances once they have died, there are several small things you can do today for yourself or the person you are caring for.

Special counsel at Foley & Lardner, Jamil G. Daoud, offers the following tips:

  • Get hard copies of bank statements. Online statements have become the norm for current and savings accounts. Try to obtain detailed records by printing off online statements or requesting paper ones.

  • Consolidate accounts. This might not be possible if there is a complicated web of savings accounts, but if there is a savings account here and a current account there, merging them could simplify matters.

  • Pre-plan your funeral, if you can. One of the main reasons people need quick access to a person’s bank account after they have died is to cover the arrangements. Planning ahead alleviates that stress during an emotional time.


15 December 2020