Abogado Aly: Can a bank release funds without probate?

One of the most difficult aspects of a person passing away, besides the actual grieving of loved ones, involves the financial consequences to the deceased person’s estate, family, and beneficiaries. The idea that I have in my mind involves you being an executor of someone’s will or a potential beneficiary under the will who is waiting for funds to be released from a bank account. In either scenario, you have a clear interest in getting the administrative and procedural processes completed where this money can be disbursed correctly. Whether you are overseeing the release of that money or are the beneficiary of that money you would want that to occur quickly so you can move on with your own life.

Unfortunately, the process of getting that done is not always straightforward. There can be issues with a will. For one, what if a loved one comes forward and files a separate will than the one you had access to? This will could have been dated earlier than the one that you had. It could look like the deceased person signed the will, as well. The content of the will may describe the entirely different property and have different people listed as beneficiaries. This would be known as a challenge to your will and can take some time to sort through. If you had hoped to avoid having to probate the will you had then this dream probably flew out the window the moment that the will was produced by the rogue family member.

Another circumstance that could be relevant in your scenario is one where a family member of the deceased person comes forward to assert that someone fraudulently induced the deceased person to sign a will that went against their true intentions. Or the person may have been forced into signing a will against his will. Imagine a situation where the deceased person was told that unless he signed a will that promised a certain individual property that a bad outcome would result for him or his family. This pressure could have resulted in a “bad” will being drafted that hurt the deceased person’s estate and their family.

Without a doubt, these are circumstances that you want to avoid either as an executor of a will or as a beneficiary under a person’s will. What you want is a stress and drama-free experience where you do not need to go through a difficult probate case just to execute on the person’s wishes via their will or to collect the property that you have been promised under the will. However, if that occurs and you do need to be a part of a probate case then you need to learn about the process so that you can protect your interests or the interests of the deceased person’s estate.

Time is relative but it can still be a pain

Again, I do not mean to diminish the death of a loved one or a person close to you. There are certainly more important things in life than money. However, when it comes to the nitty-gritty, objective elements of a will or probate proceeding it is the money that counts. Getting people paid- whether it be creditors or beneficiaries that ultimately matters. The estate has to pay the least amount of money to other people to get to that point is also an important consideration. Having to go through probate guarantees some degree of the cost will be associated with the case. However, having a person challenge the will means a significant increase in those costs. It can be disruptive to the deceased person’s family, frustrating to you as an executor, and a waste of resources in some regards to the person’s estate.

On top of that, some financial institutions are frustratingly slow to release funds to beneficiaries/executors even when there are no issues with a will. Typically, a financial institution like a bank or credit union will require executors to obtain a grant of probate before distributing money in a deceased person’s checking or savings account. This grant of probate is a document that provides you as the executor with the authority to administer the deceased person’s property.

If this sounds like a straightforward process to get, I can tell you that it is not always the case. Many executors will tell you that it is some work to get the assets released even after getting the grant of probate. For one, an inheritance tax return will need to be completed by you to obtain this document from a court. Next, you would also need to work with the court to make sure that any creditors are paid in full before any beneficiaries under the will are satisfied. This alone can take some time and certainly is not a task for the weak-kneed. The key, therefore, would be able to have these funds released without having to go through probate or having to obtain a grant of probate. This can stand to benefit you as the executor as well as the beneficiaries.

Banks and other financial institutions are notoriously conservative both in administering trusts and in releasing funds from the accounts of deceased individuals. In most situations, a bank will not release any funds to an executor without the will having first gone through probate. This can present time problems for beneficiaries. Imagine a situation where a beneficiary under your will has to wait an interminable amount of time to have the property released to him or her. Telling a landlord or creditor that he has some money tied up in will probate usually will not work. Those bills come regularly and there is not much the beneficiary can do in that position other than wait and then suffer the consequences of having to wait.

Workarounds for a person to manage before their passing

If you are a person who is working on their will then you can create a workaround on this, however. I’m not saying do not create a will at all. There are not always workarounds for you to get around the reality of having to go through probate. However, there is a workaround that can benefit your estate, your executor, and your beneficiaries. This workaround involves a payable on death beneficiary for these financial accounts. Not placing a payable on death designation on a particular bank or financial account will mean that you likely need to go through probate to have the account opened and ready to be distributed according to the terms of your will. Following through with the payable on death beneficiary can save everyone a great deal of time, stress, and money.

A small estate affidavit could also be an option for you. If your estate is relatively small, worth less than $75,000, then you can use the small estate affidavit to expedite the probate case and get your beneficiaries their money quicker than normal under a typical probate case. The probate court of the county where you resided at the time of your passing must approve the form for it to be utilized to collect any money from a financial institution, however. Simple, easy, and less expensive are music to the ears of a beneficiary or executor.

Still, I would argue that the payable on death method is the easier and more sensible road to take in Texas. You can name a single person or more than one person as a payable on death beneficiary through the bank or credit union where you have funds. All you need to do is go to the website of your bank and ask for a payable on death form. Or you may need to head to a physical location of the bank or credit union depending upon how digitally savvy your bank is. Either way, it is certainly less trouble than having to go through probate or even file a small estate affidavit.

This money does not become a part of your probate estate once you perform the necessary actions through your financial institution. The benefit to this is the quick and easy ability to transfer the account to the beneficiary(ies) once you pass away. Only after your death can the beneficiary claim the money by proceeding to the bank with a death certificate of yours and photo identification. The bank will simply refer to the designation that it has on file, review the documentation provided by the beneficiary and then turn over the funds.

If you own an account that has a payable on death beneficiary, but the account has a co-owner then this presents a situation where the surviving owner would automatically become the sole owner of the account. This account would not go through probate and would not cede to the beneficiary. Your surviving co-owner would likely need to talk with the person named as beneficiary and determine whether he or she would like to fill out a payable on death form similar to you. In most cases, a bank or credit union would not allow you to be put in this scenario, but I believe it bears mentioning regardless.

What about a bank account with a right of survivorship?

Most bank accounts that are held in your name and the name of another person are accounts with a right of survivorship. This means that if you pass away the surviving owner would automatically become the person who owns all the money in the account. Your account may be specifically called a bank account with the right of survivorship. You can look at the documents you completed to open your account at your local bank or credit union to determine if this is true. If you are not sure you can contact your bank and then you will know for certain at that point. Even if your account is not explicitly one that is named a right of survivorship account then you can presume that it still carries the right of survivorship status. However, the only way to be sure is to contact your bank to ask. Retirement accounts usually work this way, as well.

What kind of uncertainty is possible after your death?

It is extremely unlikely that a relative, for example, would try to argue that your spouse should not take over the funds in an account that has both of your names on it. However, if you own a bank account only in your name and not in the name of your spouse you run into a situation where someone attempts to make that argument. This is true even in Texas- a community property state where accounts that are opened up during your marriage are considered to be community property in most cases even if only your name is on the account. Your intention on where the money in that account should end up is not necessarily relevant given the community property laws of Texas like it would be in another state that adheres to common law principles.

Putting something in writing, like in a will, is a good way to eliminate any doubt about the intentions you have for your bank accounts. Even if you have a survivorship assumption or even a payable on death designation. That you can rule out any disagreements or potential arguments in a legal sense over the contents of these accounts. Do not assume that everyone will be on board with what you want when you pass away. Assumptions are dangerous things to make in the context of an end-of-life situation. Rather, take matters into your own hands and have a will drafted. Even if you do not have a great deal of property or if you are very young you should still have a will. It is not expensive to draft a will and does not need to take a lot of time especially if you have a relatively simple estate to plan for.

What about situations where bank accounts are held by you and a person other than your spouse?

We have already covered a situation where you have an account shared between you and your spouse. The community property laws, survivorship provisions of your bank as well as basic common sense would lead nearly everyone to presume that your surviving spouse would get that property upon your passing.

A different situation could arise where you own an account with a younger person who is not your spouse- such as your child. This happens with some frequency as parents begin to reach an age where they may not be able to care for themselves and their finances as they once did. As a result, you may feel more comfortable with an adult child of yours having signing privileges for your account. For example, your child could withdraw money for you, sign checks, and generally conduct business as a co-account holder.

I don’t know that the general presumption, in this case, would be to have that younger person be able to legally inherit the property after your passing after a spouse passes. I think it is more likely that the presumption would be that their name was added only as a convenience to the primary account holder- especially if you were to name a person other than your child as a co-account holder. While this may be true, the person would legally become the owner of the account after your passing. Bear in mind that unless there is anything in place in terms of writing, there would be nothing to help anyone know for sure what specific intentions you had (if any).

You may have spoken to your loved ones about having a different intention than having a younger person on the account inherit the property. However, without having that in writing then you would likely find yourself in a position where the co-account holder would be receiving the funds contained therein at the time of your passing. Even if your family goes to a probate judge and presents them with circumstantial evidence showing your intention to have another take over the funds this is not likely to be a way for them to be successful. A will with clear language would be the best method to employ.

When it is all said and done, I hope you can see that a lot of the misunderstandings and other issues inherent in this process can be solved by you simply taking the time to draft a will. A will that encapsulates your main concerns, thoughts, plans, and best intentions does not take much time to put into writing. It can provide you and your family with a great deal of peace of mind. It reduces the risk of “funny business” that can occur after your passing

Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan

If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed probate law and estate planning attorneys offer free of charge consultations six days a week in person, over the phone, or via video. These consultations are a great way for you to learn more about the world of estate planning and probate law and how your family’s circumstances may be impacted if you become involved in a case like this.

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Tuesday, January 18, 2022

Can a bank release funds without probate?