Below are five reasons why it’s a lot better for your executor to manage your estate through an estate account.
Say you have been doing a little estate planning, you might have thought about making your planned executor of your estate a joint account holder on a current financial institution accounts. Or, when you’ve been named the executor of an estate, it could seem better to just open a separate financial institution account in your name to assist with your responsibilities in dealing with estate issues.
Nevertheless, in each case, utilizing an estate account is the better way to go. Below is why.
What Is an Estate Account?
An estate account is a financial institution account in the name of the estate. It’s meant to act as a temporary financial institution account to hold the estate’s funding while an executor deals with daily matters associated with managing the estate, like paying liabilities and, at then of the day, allocating the assets in the estate to the beneficiaries of the deceased.
An executor needs to provide the financial institution with the required documents to open an estate account, in which typically includes death certificate. The executor also must apply for an employer ID number for the estate.
Reasoning for Opening an Estate Account
Whereas foregoing an estate account may appear to be more efficient, there are 5 good reasons why an executor needs to open one.
- Easier accessibility to the deceased’s funds. When a taxpayer passes away, their assets are usually frozen. To access those frozen assets, the estate is required to be opened in probate and an executor named. Since an estate account is in the estates name, it is a lot easier to transfer these formerly frozen assets into the estate account, whereas the executor can have handy access to the funds for the management of the estate.
- Deposits of disbursements made to the deceased. The executor is usually in receipt of checks in the deceased’s name, in payment of the amount owed to the deceased when they were still living. The estate account makes it easier for the executor to sign and deposit those payments.
- More simple record keeping for tax and other objectives. With an estate account the executor has all of the deceased’s funds in one main area from which the estate liabilities can be paid and the last distribution of any leftover funds made to the estate’s beneficiaries. For avoiding possible personal accountability, executors need to be particularly careful in their management of the estate of the deceased. An estate account enables an executor to more easily monitor incoming and outgoing funds and present the kinds of records that might be required for tax or other purposes.
- Avoidance of co-mingled funds. In order to avoid accountability issues, an executor needs to take care not to co-mingle their own personal funds with the estate’s funds. When an executor’s personal funds are co-mingled with funds held in the estates trust, the executor can be vulnerable to a lot of possible liability issues. Since record keeping is a lot more challenging when dealing with co-mingled funds, an executor that faces a claim that they have used the estate’s funds for their own personal use is going to have a far more difficult time verifying they have not done so.
- Safeguarding of estate assets. If you’re in the process of carrying some estate planning, adding your planned executor as a joint account holder to one of your current financial institution accounts may appear ideal. Through a surviving joint account, once one of the joint account holders perish, the other holder is then the surviving joint account holder. Those assets in the account are not frozen and the other holder remains to have accessibility to the funds. Nevertheless, from the point of view of your other beneficiaries, this can be a perilous situation, because there is nothing preventing the other holder from using the funds like their own. In addition, any assets you hold in the joint account become susceptible to allegations from the creditors of the surviving joint account holder.
Whereas opening an estate account may appear like a complex, needless step for an estate’s executor, it’s actually the perfect device for management purposes and helps decrease an executor’s accountability exposure.
Therefore, an estate account is the best option for executors, and grantors should keep this in mind when thinking about the use of joint accounts throughout the estate planning process.
5 reasons to open an estate account. LegalZoom. (n.d.). Retrieved January 19, 2023, from https://www.legalzoom.com/articles/5-reasons-to-open-an-estate-account
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