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What is an Estate Account, Do I Need One and How Does it Work

What is an Estate Account

What is an estate account?

An estate account is an account that belongs to an estate. As opposed to a personal account, which belongs to a person. Estate funds should be kept in the estate account or can be left in the name of the decedent.

Whenever an executor collects funds for the estate, they have to deposit those funds into the estate account. The executor cannot deposit estate funds into a personal bank account. When it’s time to distribute funds to the beneficiaries of the estate, beneficiaries typically get checks drawn on the estate account.

Most executors are required to open an estate account. An estate account is where the decedent’s assets are liquidated before those assets are distributed to the beneficiaries of the estate. Even if the estate is small, opening an estate account is a good idea. An executor or administrator of an estate is not allowed to commingle their own assets with those of the estate. What is an estate account if not something that makes it easier to account to the beneficiaries and makes for a faster closing of an estate!

Here are some examples of estate funds that need to be deposited into an estate account:

  • Interest from assets of an estate.
  • Rent collected on property belonging to the estate.
  • Checks that are made out to the decedent.
  • Funds belonging to the decedent.

Opening an estate account is a part of the probate process. The probate process has many components. If you are the person in charge of the estate here is roughly what the process would look like:

  • Get appointed by the court to be in charge of the estate
  • Find out what is an estate account
  • Open an estate account
  • Locate estate property
  • Pay the decedent’s debts and taxes
  • Resolve any disagreements
  • And finally, distribute the remainder of the property to the heirs

Opening and correctly managing an estate account is an important part of the probate process that should not be overlooked.

Do I have to have an estate account?

You don’t always have to have an estate account. For example, an estate that does not have any funds to be deposited does not need one. Even though an executor does not have to have one, it’s good to have just in case and a good thing to have just in case.

Can I just retitle decedent’s accounts to the beneficiaries?

The executor can disburse the finds from the decedent’s accounts to the beneficiaries. The executor should still follow the correct estate process and upon receive signed waivers from every beneficiary before they disburse the funds. The executor can also retitle the decedent’s accounts to the beneficiaries, either in accordance with the will or in accordance with intestate distribution, if the financial institution allows retitling from the decedent to beneficiaries and only after beneficiaries sign waivers.

The executor should also wait for an appropriate amount of time to give creditors time to assert claims on the estate (in New York this is seven months). If the executor disburses funds without following the correct procedure, the executor can be personally liable to the creditors or to the beneficiaries, or to both. To do their job correctly, the executor needs to realize what is an estate account. It’s something that cannot shield an executor from personal responsibility, but it is something that helps if used correctly and in accordance with the law.

Does an estate account need its own tax id?

Financial institutions have to have a social security number or a tax id number on file for each account. They report account ownership to the government and use the number for things such as finding the account when the signer lost the account number, identifying the owner of the account and reporting to credit bureaus. For a personal account, the bank uses a social security number to identify the owner. For an estate, the bank uses a tax id number to identify the owner. Similarly to a business account, an estate account has a tax id number. The executor of the estate can obtain a tax id number online.

How do I open an estate account?

To open an estate account, you need to go to the bank and request that they open an estate account. Estate accounts are subject to different reporting requirements than personal or business accounts. In some states and in some estate situations, estate accounts are restricted. For example, some estate accounts are restricted in a way that allows deposits but no withdrawals can be made without a court order. What is an estate account also depends on what state it is being opened in. Not every banker would know how to open one, but there should be someone available who can assist you with opening an estate account. Typically, a supervisor would know how to open one. With the technology evolving every day, it may be possible to open an estate account online, you can check with your bank.

What documents do I need to bring to the bank to open an estate account?

To open an estate account, the executor needs the following documents:

  • Personal identification such as a drivers license. Even though the account is not personal, the bank would still need the identification of the person who is opening the account.
  • An original document from the court which appoints them as the executor, administrator or personal representative of the estate. This can be a certified letters of administration or letters testamentary from the court with a raised seal, or it can be an original watermarked court-issued certificate of appointment of administrator or certificate of appointment of executor.
  • A tax id number letter issued by the IRS. It can be obtained form the IRS website.

What is the difference between an estate account and a personal account?

What is an Estate Account What is a Personal Account
Belongs to an Estate Belongs to a person
Has a tax ID number Has a social security number
Holds estate funds Holds personal funds
Subject to probate court Not subject to probate court
Can have additional court restrictions Does not have court restrictions

Can an executor withdraw cash from an estate account? No. Why not? Because the estate’s money does not belong to the executor – he is just managing it. What do we call it when a manager steals money he is managing? That’s right, it’s called embezzlement. Or more simply, stealing.

Can an executor deposit their own funds into an estate account? No. Because there is no intermingling of personal and estate funds. After all, what is an estate account if not an account to hold estate funds.

Opening and property managing an estate account is an important part of what an administrator, executor or personal representative of an estate must do. If properly opened and maintained, an estate account helps an executor avoid getting in trouble with the law and with the beneficiaries. If you have questions about your estate account, ask your attorney. If you are looking for a New York estate attorney or would like to know more about what is an estate account, you can call Albert Goodwin at 718-509-9774 or 718-509-9774.