When a person passes away, their bank usually freezes their account. The executor of the deceased’s estate will distribute the funds held in the bank account of the deceased according to their will — a legal document that expresses a person’s wishes for the distribution of their assets and wealth after their death.
If a person dies without a will, the law states they have died “intestate.” Which means they did not leave any instructions regarding the distribution of their property. In these circumstances, the succession laws of the deceased’s province will govern how the assets — including the money in the bank account(s) — will be distributed.
In the majority of the cases, the spouse inherits most or all of the money, while the remainder is split among the children. Generally speaking, banks cannot close the bank account of a deceased before their estate has gone through probate. If the deceased has an unpaid personal loan or credit card loan, the debt will be first paid off from their bank account. Only then, will the remaining funds be distributed among the surviving family members.
When a person passes away, the next of kin must notify the bank. They will need to submit documents showing proof of death and executor status. Usually, the following documents are needed:
- A copy of the death certificate
- A copy of the will
- Proof of executor status
If a person dies without a will, the provincial court will appoint an administrator for their estate. In these situations, the following documents must be submitted to the bank:
- A copy of the death certificate
- A probate court’s letter naming the person appointed as the estate administrator
Different factors that can affect the process
How the bank account of a deceased is handled depends on what type of account the person had. A checking or savings account (referred to as a deceased account after the owner’s death) is handled according to the deceased’s will. If no will was made, the deceased’s account will have to go through probate.
Probate is defined as the judicial process whereby a will is "proved" in a court of law and accepted as a valid public document that is the true last testament of the deceased, or whereby the estate is settled according to the laws of intestacy in the state of residence of the deceased at time of death in the absence of a legal will.
In the scenario that the deceased had a joint bank account, this type of account is not regarded as the deceased’s account after their death. The same goes for a payable on death (POD) account.
A joint bank account is one that is owned by two or more people. If one owner passes away and the surviving owner is the spouse, the latter can access the account. However, if the surviving owner is someone else, the right of survivorship will not come into play.
In payable on death account, the account owner designates one or more beneficiaries to receive the funds held in that account after their death. These accounts offer an easy way to avoid probate. However, in Canada, you can only name beneficiaries on registered accounts, like RPSPs or TFSAs.
If you have a bank account, a joint account is the simplest way to keep money out of probate.
Another way to avoid probate is to hold a bank account in a trust. After you pass on, the successor trustee is responsible for transferring funds to the heir(s) named in the trust document.
What happens to a joint account?
What happens to a joint account after you pass away depends on two things:
- who the joint owner is
- where you live
Joint owner is your spouse
If you have a joint bank account with your legally married spouse, the latter will inherit the funds held in it after your death, unless you live in Quebec. In Quebec, if you own a joint bank account with your spouse and one of them passes away, the bank account will be temporarily frozen, then the money will be split between your estate and the surviving account holder. Joint accounts set up by married couples come with the right of survivorship. That means on the passing away of one account holder, the surviving owner gets full ownership of the account.
A few things to keep in mind before you set up a joint bank account with your spouse:
- The right of ownership exists separately from a will. That is because by signing it, both partners have already made it clear that they want the surviving spouse to inherit the bank account after their death
- The right of ownership can kick in without a will. In other words, any bank account that you held with your spouse will not become a part of your estate after your death even if you did not leave a will
- The right of ownership is not available in Quebec
- The right of survivorship does not come into play if you have a joint account with someone other than your spouse
Joint account held with other people
What happens to a joint account held with a child or a parent after your death?
Joint accounts that you hold with somebody other than your spouse do not come with the right of survivorship. After your death, such an account will be handled according to your will. If there is sufficient documented proof that you wanted the surviving owner to receive full ownership, the bank will act accordingly.
Otherwise, it will freeze the account, which will then become a part of your estate, like other assets. As a result, the funds held in it will be subject to the same process as the money in a solo owner bank account. That is, the estate owner will first use them to pay off any debts you owe. Once that is done, your next of kin will inherit the remaining money.
How to avoid a frozen bank account?
When dealing with the loss of a spouse, the last thing you would want is to be left with a frozen account. If the bank freezes the deceased’s account, you will not be able to withdraw money from it, even if you are supposed to inherit most or all of it.
Depending on your financial situation, this could add to your troubles, especially since the process of unfreezing a bank account can be drawn-out. It could be several weeks before the bank lets you access the funds held in the deceased’s account. Before that can happen, the executor of the deceased’s will must first get probate — that is, prove in the court that their will is valid.
Given that the freezing of a bank account can have serious financial implications, it is best to avoid it. How can you do that? Here are three easy ways that help ensure your bank account does not go through probate:
- Set up a joint bank account with your spouse
- Name a beneficiary
- Hold the bank account in trust
What if you have a will?
When you make a will, you make things easier for your loved ones after your death. That is because they will not have to second guess what your final wishes were. Creating a will also allows you to name an executor — a person who will administer your estate after your death.
You can choose multiple executors and name anyone as an executor — including a trust. Their duties include, among other things, distributing your assets among your beneficiaries according to your wishes.
Once the bank learns about your death, it will temporarily put the funds in your account on hold. However, while the probate is underway, the bank will allow withdrawal of funds of certain expenses, like burial costs, credit cards, and personal loans. This ensures your loved ones will not have to pay for them out of their pockets, which may put them under financial stress.
Once the probate process is complete, the bank will close your account and hand over the funds to your estate. The executor will first pay off other debts and then distribute the remaining money among your heirs according to your will.
What if you do not have a will?
A will is a legal document that lets you decide how your funds will be split among your loved ones after you pass away. Moreover, not having a will makes things hard for your family when you are gone. Yet, half of Canadians do not make a will.
Without a will, the law states that you have died intestate. That means you left no instructions regarding how your assets are to be divided and distributed. As a result, the intestate laws in your province will determine what happens to your assets, including your bank account.
While these laws vary across Canada, whatever money that is left in your account after paying off your debts will go to your next of kin. One important side-note: Provincial laws governing inheritance treat married and common-law spouses differently. Unless you name your common-law partner as a beneficiary in your will, they will not get anything. Your property goes to your children or to close relatives upon your death.
Your bank account will go through probate, just as it would if you had made a will. However, without a will, this process can be overly complicated. The court decides who will administer your estate, which can be time-consuming, costly, and even contentious for your family.
How to plan ahead and avoid difficulties
While we do not know when we will die, there are steps we can take to ensure our loved ones do not struggle to pick up the pieces after we are gone, especially when it comes to finances. Consider the following to avoid complications:
- Seek advice from an estate planner, a lawyer, or a financial institution
- Make a Power of Attorney (POA). It is a document that gives someone you trust a legal authority to take decisions on your behalf
- Create a will and store it in a safe location
- Open a trust account. Since there are more than one type of trust, speak to a financial expert to learn which type will best suit your needs
If you want your spouse to inherit the money in your bank account after you pass on, set up a joint account. They will receive full ownership in the event of your death. If you are single, want someone else to inherit the funds, or want to distribute them among your spouse and other family members, create a trust account or make a will and spell out your wishes. With or without a will, your bank account will go through probate, and it will be some time before your heirs receive the money. However, if you do not leave a will, your province will decide who will inherit your assets and how much. This could create conflict between family members and even cause economic hardship for them.