Is It Illegal To Withdraw Money From A Deceased Person’s Account?

It is illegal to withdraw money from an open account of someone who has died unless you are actually named on the account before you have informed the bank of the death and been granted an order of probate from a court of competent jurisdiction. Typically, when someone dies banks and building societies freeze their accounts until the person dealing with their estate has applied for an official document known as a Grant of Probate. An executor is named in the Will and is the person entitled to apply for probate. If the deceased died leaving no will then the law state that is entitled to apply for probate, known as an administrator. The executor or administrator also called personal representatives takes responsibility for dealing with the estate.

What is the Punishment for Taking Money From a Deceased Account?

The punishment for illegally withdrawing money from a deceased person’s account can vary significantly depending on the specifics of the crime and jurisdiction in question. In general, this action is regarded as theft, and the penalties can include fines, restitution, and potential imprisonment. The severity of these penalties is typically proportional to the amount of money that was taken. If the deceased account was a part of the estate going through probate, this action can complicate the process and potentially delay the rightful distribution of assets to the heirs. Moreover, taking money from a deceased’s account without proper authorization can lead to a charge of fraud, especially if the act was intended to avoid inheritance taxes or debts owed by the deceased. Fraud penalties also often include fines and imprisonment, as well as potential civil lawsuits from other affected parties. In summary, it is crucial to abide by the legal processes associated with deceased individuals’ accounts to avoid such penalties.

This might come as a relief to bereaved families who believe this makes a loved one’s estate easier to deal with, however, this certainly raises numerous issues, a few of which are detailed below:

• The person who presents themselves at the bank with the death certificate may be the personal representative but it is possible they are not the person entitled to benefit from the estate.

• There have been many instances where the person who provides the death certificate to the bank is not the personal representative, nor are they entitled to receive a share in the estate. The personal representatives then have to rely on this individual to pay this sum to the estate so that it can be correctly distributed. This could result in matters becoming contentious if relations between the parties involved are not harmonious.

• When the personal representative files the inheritance tax account they might believe that because the bank has already released the funds without probate that they do not have to be included. The personal representatives are therefore not delivering a true account and potentially not paying the correct inheritance tax.

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.

Current and savings accounts

Bank accounts remain open until all the money is retrieved and the account formally closed. However, direct debits and standing orders will be cancelled. Remember, it is illegal 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 informed the bank of the death and been granted probate. This is the case even if you need to access some of the money to pay for the funeral.

As the executor, it is down to you 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. 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 the inheritors, but must be paid off before the remainder of the estate is distributed as per the instructions laid out in the will. If you are unsure of what or how much money is owed, you’ll need to place a notice in 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 one of you dies.

If you own an account in your own name, and don’t designate a payable-on-death beneficiary then the account will probably have to go through probate before the money can be transferred to the people who inherit it. If, however, the total value of your probate assets is small enough to qualify as a small estate under your state’s law, then the people who inherit from you will have simpler, less expensive options. Depending on your state’s law, they may be able to use a simplified probate procedure or simply prepare an affidavit (sworn statement) stating that they are entitled to the money, and present that to the bank. Not all states offer both options
After death, the beneficiary can claim the money by going to the bank with a death certificate and identification. Your beneficiary designation form will be on file at the bank, so the bank will know that it has legal authority to hand over the funds.

Jointly Owned Accounts

If you own an account jointly with someone else, then after one of you dies, in most cases the surviving co-owner will automatically become the account’s sole owner. The account will not need to go through probate before it can be transferred to the survivor.

Accounts With the Right of Survivorship

Most bank accounts that are held in the names of two people carry with them what’s called the right of survivorship. This means that after one co-owner dies, the surviving owner automatically becomes the sole owner of all the funds. Sometimes it’s very clear that the account has the right of survivorship. If your account registration document at the bank simply lists your names, and doesn’t mention joint tenancy or the right of survivorship, it might be a joint tenancy account, but it might not. If you’re in doubt, check with the bank and make sure the right of survivorship is spelled out if that’s what you want. If you and your spouse open a joint bank account together, it’s very unlikely that anyone would argue that the two of you didn’t intend for the survivor to own the funds in the account. But if you have a solely owned account and add someone else as a co-owner, it may not be so clear what you want to happen to the funds in the account after your death.

Some people add another person’s name to an account just for convenience for example, perhaps you want your grown daughter to be able to write check on the account, to help you out when you’re busy, traveling, or not feeling well. or you might want to give a family member easy access to the funds in an account after your death, with the understanding that the money will be used for your funeral expenses or some other purpose you’ve identified.
Legally, however, the person whose name you add to the account will become the outright owner of the funds after your death. Unless there’s something in writing, there’s no way to know or enforce the terms of any understanding the two of you reached about how the money would be used. The new owner is free to spend the money without any restrictions. If other relatives think you had something else in mind, they may be resentful or angry if the surviving owner uses the money for personal purposes instead of paying expenses or sharing the money with other family members.
If you want someone to have access to your funds only so they can use them on your behalf, there are better ways to do it. Consider giving a trusted person power of attorney (this gives them authority during your life), or leave a small bank account and instructions for its use after your death. Don’t make someone a co-owner on an existing account unless you want them to inherit the money without any strings attached.

Bank Accounts Held in Trust

If you’ve set up a living trust to avoid probate proceedings after your death, you can hold a bank account in the name of the trust. After your death, when the person you chose to be your successor trustee takes over, the funds will be transferred to the beneficiary you named in your trust document. No probate will be necessary. To transfer the account to your trust, tell the bank what you want to do. It may have some forms for you to fill out. Then the bank should adjust its records, and your account statements will show that the account is held in trust.

The owners of many bank accounts, especially savings accounts and certificates of deposit (CDs) name payable-on-death (POD) beneficiaries for the accounts. That means that when the account owner (or the last surviving owner, in the case of a joint account) dies, the payable-on-death (POD) beneficiary can simply claim the money from the bank. The deceased person’s will doesn’t come into play, and there’s no need for any probate court involvement, either.

The Executor’s Role

When money is left to a payable-on-death beneficiary, it doesn’t pass under the terms of the deceased person’s will. That means the money is not part of the deceased person’s probate estate, and it isn’t under the control of the executor. So if you’re the executor (or administrator appointed by the court), it’s not really your job to help transfer the funds to the payable-on-death {POD) beneficiary who inherits them.

You may also be the one to notify payable-on-death (POD) beneficiaries that they have in fact entitled to some money. Otherwise, unless the deceased person told them, beneficiaries may not know. You’ll be able to see that there’s a payable-on-death beneficiary when you look at the deceased person’s bank statements; just look for the term payable-on-death in the account name.

How to Claim the Funds

To collect funds in a payable-on-death( POD)bank account, all the beneficiary needs to do is go to the bank and present ID and a certified copy of the death certificate (if the bank doesn’t already have one on file). The bank will have the paperwork, signed by the deceased owner, which authorized the beneficiary to inherit the funds. The beneficiary can withdraw the money or open a new account.

With a time deposit, such as a certificate of deposit (CD), the beneficiary has a few options:

• Leave the funds in the certificate of deposit until its maturation date. This would make sense if the beneficiary doesn’t need the money right now and the interest rate being earned by the money is higher than what’s available in other investments.

• Withdraw the funds. There is usually a penalty for withdrawing money from a certificate of deposit before its maturation date, but when the certificate of deposit is inherited, the new owner generally does not have to pay an early-withdrawal fee.

• Re-title the certificate of deposit in the beneficiary’s name. If the beneficiary wants to transfer the funds into his or her own name, the bank will probably need to rewrite the certificate of deposit at whatever interest rate is currently being offered. So if rates have gone up since the original certificate of deposit was bought, this could make sense.

Potential Complications

Payable-on-death designations are widely used because they’re simple both for the person who sets them up and the beneficiaries who inherit. Sometimes, however, circumstances can make for complications. If there’s a disagreement over who inherits the funds in an account, consult a local attorney who’s knowledgeable about state probate law.

Divorce

If someone names his or her spouse as a payable-on-death beneficiary, and then the couple divorces, the payable-on-death designation may or may not be automatically canceled. Just like the effect on the will, it depends on state law. Any former spouse who wants to claim a payable-on-death account should check the law to make sure the designation is still in effect.

Multiple Beneficiaries

It doesn’t have to be a problem when more than one person is named as a payable-on-death beneficiary of a single account commonly, the beneficiaries simply split the money evenly. Problems arise only if the beneficiaries can’t agree on what to do about money tied up in a certificate of deposit, or if they’ve inherited an asset that isn’t easily divided. As always, compromise offers the best solution both for everyone’s pocketbook and for long-term family relations.

Ineligible Beneficiaries

It’s uncommon, but some state laws still restrict who can be named as a Payable-on-death beneficiary. It’s never a problem to name a natural person, but there may be prohibitions against designating a charity or other organization to inherit in this way.

Contradictory Will Provisions

Almost always, the Payable-on-death designation wins it’s a contract with the bank, and can’t be changed by will. There are exceptions, however. Some states allow people to revoke Payable-on-death designations in their wills if the will specifically identifies the account.

Free Initial Consultation with Probate Lawyer

When you need legal help with an estate, probate or trust administration, please call Ascent Law for your free consultation (801) 676-5506. We want to help you.