Opening and Running an Estate Bank Account in New York

By Albert Goodwin, Esq., New York estate and probate attorney

An estate account is a bank account titled in the name of the estate and controlled by the fiduciary the Surrogate's Court appointed: an executor if there is a will, or an administrator if there is not. In New York, the account does more than hold money. It is the record a beneficiary, a creditor, or the court will use to test whether you handled the estate properly.

This page covers the parts of opening and running the account that cause trouble in New York practice: how current your Letters must be, what a restriction on your Letters does at the bank, when you can safely pay creditors and beneficiaries, which tax returns run through the account, and how to close it. For the steps that come before the account, see our pages on Letters Testamentary and Letters of Administration.

Why New York requires a separate estate account

EPTL 11-1.6 requires a fiduciary to keep estate property separate from their own and to hold estate money in an account in the fiduciary's name as fiduciary, for example "Estate of Jane Doe, John Doe, Executor." The statute is the reason the account exists. If you deposit estate money into a personal account, even briefly and with good intentions, you have broken a specific statutory duty. For what follows when a fiduciary commingles funds, see our page on breach of fiduciary duty.

Before you go to the bank

You cannot open the account until the court has issued your Letters. You will also need an Employer Identification Number for the estate, because the decedent's Social Security number cannot be used for an estate account. The IRS issues the number online at no cost through its EIN application page. Bring the confirmation notice to the bank.

Certificates of Letters and the date problem

Most banks do not want your original Letters. They want a certificate of Letters issued by the Surrogate's Court clerk that confirms your appointment is still in effect. The most common reason a New York bank turns a fiduciary away is that the certificate is too old. Many institutions will not accept a certificate dated more than 30 to 60 days earlier. The window varies by bank, and sometimes by department within the same bank.

You can order additional certificates from the clerk of the Surrogate's Court in the county where Letters were issued. Each certificate carries a small fee. Ask for several at once, because brokerage firms, insurers, transfer agents, and the IRS may each want their own. If months pass before you reach a particular institution, order fresh certificates instead of sending old ones that will be rejected.

What the bank will usually ask for

• Certificate of Letters: recently dated, with the court seal.
• EIN confirmation: the IRS notice showing the estate's tax ID.
• Your identification: a government-issued photo ID, since federal rules require the bank to identify the person who will sign.
• Death certificate: many banks ask for a certified copy, and some also want a copy of the will.

Some banks open estate accounts only at a branch. Others route them through a centralized estate services department that works by mail or online and never requires a branch visit. If you live outside New York, ask the bank which process it uses before you travel.

Restricted Letters and the estate account

Under SCPA 702, the Surrogate's Court can issue Letters that limit what the fiduciary may do. Read your Letters line by line before you open the account, because the bank will see any restriction on the certificate and will enforce it.

Common restrictions in New York include:

• No collection or withdrawal without further order: funds must sit in an account that you cannot draw on until the court approves. Courts often impose this when bond has been dispensed with or reduced, when a minor or incapacitated person has an interest, or when the fiduciary's relationship with other beneficiaries is contentious.
• No compromise of a lawsuit without court approval: this is standard where the estate has a wrongful death or personal injury claim. Settlement of a wrongful death action requires court approval under EPTL 5-4.6, and the proceeds are often directed into a restricted account.
• No sale of real property without further order: this does not stop you from opening the account, but it controls when sale proceeds will arrive.

To release restricted funds, your attorney files an application with the same Surrogate's Court explaining why the money is needed, such as paying funeral expenses, estate taxes, or co-op maintenance, or making a distribution once claims are resolved. The court issues an order, and the bank releases funds only in the amount and for the purpose the order allows. Build the time for that application into your planning. If your Letters are restricted and bills are coming due, raise the issue with counsel early.

A situation we see often: an administrator receives Letters restricted against collection, opens the account, and deposits a large balance from the decedent's old accounts. The administrator then cannot pay the decedent's apartment maintenance from the new account. The money is safe. Getting at it simply requires a court order that should have been requested when the restriction first appeared on the Letters.

When the bank refuses or stalls

Refusals are usually fixable. The most frequent causes in New York are:

• The certificate of Letters is older than the bank's internal limit. Order a new one.
• The name on your ID does not match the name on your Letters, such as a middle initial or a married name. Bring documents that link the two, and if the discrepancy is significant, ask counsel whether the Letters should be corrected.
• The branch staff has not handled an estate account before. Ask for the bank's estate services or deceased account department directly.
• The bank wants its own affidavit or form completed. Larger banks commonly have one.
• Your Letters carry a restriction the bank reads more broadly than you do. Your attorney can contact the bank's legal department or seek clarification from the court.

You are not required to keep the estate account at the bank where the decedent banked. If one institution will not cooperate, open the account elsewhere and have the decedent's bank send its funds there.

Money coming into the account

Checks payable to the decedent

Final paychecks, insurance refunds, and similar checks payable to the decedent can generally be endorsed by the fiduciary on behalf of the estate (for example, "Estate of Jane Doe, by John Doe, Executor") and deposited into the estate account. Some items need special handling:

• Social Security: a benefit is not payable for the month of death. A payment that arrives for that month generally must be returned, and the Social Security Administration will often reclaim it directly from the account where it was deposited.
• Federal tax refunds: a refund check issued in the decedent's name may require IRS Form 1310 or a reissued check, depending on who is claiming it.
• Pension and annuity payments: payments made after death are often subject to recovery by the payor. Do not spend them until you confirm the estate is entitled to keep them.

Accounts that never belonged in the estate

Accounts with a named beneficiary, joint owner, or POD or TOD designation usually pass outside the estate and should not be moved into the estate account. Accounts held in the decedent's name alone, with no designation, do flow into it. Our page on bank accounts with no beneficiary in New York covers how those are collected.

Small estates under SCPA Article 13

If the decedent's personal property, not counting real property, is worth $50,000 or less, the estate may qualify for voluntary administration under SCPA Article 13. The voluntary administrator receives a certificate instead of full Letters. Bank practice varies. Some institutions pay the voluntary administrator directly, while others require an account titled in the voluntary administrator's name. The duty to keep the funds separate from your own still applies.

Large balances and the duty to invest

An estate account is often treated as a parking space, but a New York fiduciary also has investment duties. The Prudent Investor Act, EPTL 11-2.3, requires a fiduciary to invest and manage estate property as a prudent investor would, considering the estate's purposes, its liquidity needs, and the expected time until distribution. For an estate that will be distributed within a few months, keeping funds liquid is normally reasonable. For a substantial balance that will sit for a year or more because of a will contest, a tax audit, or a real property sale, leaving it in a non-interest-bearing checking account can be challenged.

Watch deposit insurance as well. FDIC coverage is generally $250,000 per depositor, per insured bank, per ownership category, and estate funds are usually insured under the decedent's single-ownership category. If the estate holds more than that in cash, talk with counsel about spreading it among banks or using insured or Treasury-backed alternatives.

Paying creditors: the seven-month rule and its safe harbor

SCPA 1802 is often summarized as "wait seven months." The statute is more specific. It provides that a fiduciary who, in good faith and after seven months from the issuance of Letters, pays claims or distributes estate assets without knowledge of an unpaid claim is not personally chargeable for the assets paid out. A creditor who appears later may still pursue the claim, but generally only against what remains in the estate or what beneficiaries received, not against the fiduciary personally.

Two points follow from that wording:

• Distributing before seven months: you lose the safe harbor. If a valid claim surfaces and the estate no longer has enough to pay it, you can be personally liable for the shortfall.
• Distributing after seven months with knowledge of a claim: the safe harbor does not protect you either. If you know about a creditor, the seven-month mark does not clear the debt. You must pay it, reserve for it, or formally reject it.

Claims must be presented in writing under SCPA 1804, and a fiduciary may allow or reject them under SCPA 1806. If the estate cannot pay everyone, SCPA 1811 sets the order. Reasonable funeral expenses and administration expenses come first. Debts are then paid in this order:

1. Debts entitled to a preference under federal and New York law, which includes many tax debts.
2. Taxes assessed on the decedent's property before death.
3. Judgments docketed and decrees entered against the decedent, according to their priority.
4. All other debts, including notes, bills, and unsecured accounts.

Creditors within the same class share proportionally, and a fiduciary may not prefer one over another. Paying a credit card company in full while a higher-priority tax debt goes unpaid is a mistake an estate account statement will make obvious.

For a sense of how the seven-month period fits into the whole case, see our sample NYC probate timeline.

Taxes that run through the estate account

Once the estate has its own EIN, income earned after death belongs to the estate. That includes interest on the estate account, dividends, rent, and gains on sales.

• Federal Form 1041: required for any tax year in which the estate has gross income of $600 or more.
• New York Form IT-205: the New York fiduciary income tax return. A resident estate generally must file it if it is required to file a federal Form 1041 or has New York taxable income. A nonresident estate with New York source income may also have to file.
• The decedent's final returns: the decedent's own final federal Form 1040 and New York IT-201 cover income up to the date of death, are separate from the estate's returns, and are commonly paid from the estate account.

Larger estates may also owe New York estate tax. Hold back enough in the account to cover any estate or income tax until the returns are filed and the time for review has run.

Paying expenses and keeping the record clean

Ordinary estate expenses come out of the estate account: mortgage or co-op maintenance, utilities on estate real property, insurance, cleanout and junk removal, appraisals, court fees, legal fees, and valid debts. A few habits prevent most disputes:

• Pay by check or electronic transfer, and keep an invoice for every payment. When cash is unavoidable, such as paying a local handyman, get a written receipt.
• Do not take your executor commissions early. Commissions are set by SCPA 2307 and are normally paid when the estate is accounted for and the beneficiaries have approved or the court has fixed them. An early, unapproved withdrawal is one of the most common triggers of a fiduciary dispute.
• Do not make advance distributions to yourself or other beneficiaries without discussing it with counsel. Advances can be appropriate, but they need to be documented and sized so the estate can still meet its debts and taxes.
• Before paying a claimed debt, have your attorney confirm it is valid and properly presented.

If a fiduciary misuses the account, beneficiaries can ask the Surrogate's Court to surcharge the fiduciary, which means ordering the fiduciary to repay losses personally, and in serious cases can seek the fiduciary's removal.

Do not let the decedent's money go to Unclaimed Funds

Money left in a decedent's bank account does not escheat to the State simply because no one collected it. Escheat applies only when no heir is entitled to inherit. What happens instead is that, after a period of inactivity, the bank reports the funds as abandoned property and turns them over to New York's Office of the State Comptroller, which holds them as unclaimed funds.

The money can still be recovered, but the process is much slower than collecting from the bank with Letters in hand, and it can take several months. If a will contest or other delay is holding up regular Letters, your attorney can ask the court for preliminary letters testamentary under SCPA 1412 or temporary letters of administration under SCPA 901 so the funds can be collected and protected before the bank turns them over.

Closing the estate account

The account stays open until every claim, expense, and tax has been resolved and the beneficiaries have been paid. In New York, that end point comes in one of two ways.

Informal settlement

In most estates, the fiduciary prepares an informal accounting from the estate account statements and receipts. It shows assets collected, expenses paid, commissions, legal fees, and the proposed distribution. Each beneficiary reviews it and signs a receipt and release, often with a refunding agreement in which they agree to return money if an unexpected liability arises. The fiduciary then makes the final distributions from the account.

Judicial settlement under SCPA Article 22

If a beneficiary will not sign, if there are minors or incapacitated persons whose interests require court protection, or if the fiduciary wants a court decree discharging them, the accounting is filed with the Surrogate's Court under SCPA Article 22. A fiduciary can file voluntarily, and a beneficiary or creditor can petition to compel an accounting under SCPA 2205. The estate account statements become the main evidence. A judicial accounting takes longer and costs more than an informal one, and clean records are what keep it manageable. See our page on estate accountings for how that proceeding works.

Holding a reserve

Depending on the estate's size, it is often prudent to keep a reserve in the account after the main distribution, commonly for about a year, to cover a late bill, a tax adjustment, or a final return. The amount should be proportionate to the estate. Once the reserve period passes without a problem, the balance is distributed and the account is closed.

Frequently asked questions

Can I open the estate account before the court issues my Letters?

No. Banks require proof of your appointment. If money must be protected before regular Letters issue, ask your attorney about preliminary or temporary letters.

How recent does my certificate of Letters need to be?

It depends on the institution. Many New York banks want a certificate dated within the last 30 to 60 days. Ask the bank before you go, and order fresh certificates from the Surrogate's Court clerk if yours are older.

My Letters say funds cannot be withdrawn without further order. Can I still pay estate bills?

Not from the restricted account without a court order. Your attorney can apply to the Surrogate's Court for an order authorizing specific payments or lifting the restriction.

Am I protected if I distribute after seven months?

Under SCPA 1802, you are protected from personal liability if you distribute in good faith after seven months without knowledge of an unpaid claim. The protection does not apply to claims you knew about.

Does the estate need to file a New York income tax return?

A resident estate generally must file Form IT-205 if it is required to file a federal Form 1041 or has New York taxable income. Interest earned on the estate account counts toward that income.

Talk with a New York estate attorney

If you are an executor or administrator with questions about opening an estate account, restricted Letters, creditor claims, or closing out the estate, you can call New York estate attorney Albert Goodwin at 212-233-1233. For the larger process this account fits into, see our overview of estate administration in New York.