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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 issues.
However, in either case, opening an account specifically in the name of the estate is the better approach. Here’s 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.
The executor must provide the financial institution with the necessary documents to open this type of account, usually including the death certificate. Additionally, they must apply for an Employer Identification Number (EIN) for the estate.
Reasoning for Opening an Estate Account
Although bypassing the need for a separate account in the estate’s name might seem more efficient, there are five strong reasons why an executor should 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 this type of account is in the estate’s name, transferring previously frozen assets into it is much easier, allowing the executor quick access to the funds needed for estate management.
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.
Avoidance of co-mingled funds.
Safeguarding of estate assets.
If you’re doing estate planning, making your planned executor a joint account holder might seem convenient. Yet, it poses risks. If one joint account holder passes away, the other gains sole access to the funds. This unrestricted access raises concerns for your beneficiaries, as the surviving holder could use the funds as their own. Moreover, assets in the joint account become vulnerable to claims from the surviving joint account holder’s creditors.
