How to Open an Estate Account: A Step-by-Step Guide

One of the first steps an executor of an estate should take is opening an estate account, a bank account held in the name of the estate of a deceased person. The estate executor can use the funds held in the account to deal with day-to-day estate administration expenses as well as the final distribution of funds to the estate's beneficiaries.

What is an estate account?

An estate account is a temporary bank account that an executor of an estate opens to manage the estate owner's assets. The executor can consolidate all of the estate's money and liquidated assets into that fund, making it easier for them to pay off the decedent's debt, distribute the estate's assets to its beneficiaries, and deposit checks in the decedent's name into the account. The executor can also use the funds in this checking account to cover funeral expenses, personal representative fees, estate taxes, and more.

An executor opens an estate account to keep their own personal funds separate from those of the estate. If the executor were to commingle the estate funds with their personal funds, they could face liability issues. Therefore, an estate checking account establishes a clear divide between the executor’s assets and the estate's assets.

Benefits of an estate account

Overseeing an estate's finances is a lot of responsibility, but opening an estate bank account can help the executor more easily manage the decedent's affairs.

The following are some of the benefits of an estate bank account:

• Tracking. An estate bank account provides clear documentation of transactions, which helps hold the executor accountable and increases transparency.
• Reporting. With all the funds funneling through one account, it's easier to report any dividends or interest associated with the account and comply with tax laws while also ensuring that pre- and post-death transactions remain separate.
• Consolidation. An estate checking account consolidates all of the estate's finances in one place, making it easier for the executor to manage the appropriate payments, such as making deposits into the account or distributing assets to the estate's beneficiaries.
• Account separation. Opening a temporary account prevents the executor's personal accounts from mixing with the deceased's estate account, avoiding potential confusion, mishandling, and legal issues.

That said, why wouldn't you simply add a joint account holder to an existing account instead?

During the estate planning process, the idea of adding a beneficiary, usually an adult child, to an existing bank account as a joint account holder can seem like an attractive, more efficient option than creating a will and then having your executor set up an estate account after you die. In such a situation, the funds in a joint account would then transfer over to your child, who can then distribute the funds according to your wishes without having to go through probate.

However, this assumes you don’t own other assets other than the bank account. 

Some of the reasons for opening an estate bank account instead of adding a joint owner include:

• Having an estate account reduces the risk of your funds being used in a way that you would not want them used. When a joint account holder dies, the surviving joint account holders get title to the account's remaining funds. This means that they can legally use the funds in whatever way they wish. In an estate account, the funds belong to the estate and can only be used for estate purposes.
• Having an estate account reduces the potential for liability falling on the executor's shoulders because there is less risk of commingling funds, which occurs when personal assets are mixed in with estate assets. In an estate account, the only funds that can be deposited are those that belong to the estate. 

How to open an estate account

While it might seem daunting to open an estate checking account, the process is actually quite straightforward. The executor of the estate needs to follow these basic steps.

Step 1: Begin the probate process

The steps for beginning this process depend on the state in which the deceased person resided. Typically, you need to provide the state court with the death certificate and the will, if there is one. During the probate process, the court appoints an executor (the person named in the will) or, when there isn't a will, an administrator. Both an executor and an administrator typically have the same powers when it comes to administering the deceased's estate. During this stage, you may find it helpful to meet with a probate attorney to help you navigate the process. While it's not required, a probate lawyer can advise you on legal matters and ensure you understand your roles and responsibilities.

Step 2: Obtain a tax ID number for the estate account

Once the probate process has been started and an executor appointed, the executor should apply to the Internal Revenue Service (IRS) for an employer identification number (EIN) for the estate. This might sound a bit confusing because the estate isn't an employer. Rather, an EIN is simply a tax identification number used by different entities, from individuals to corporations to estates, for tax-filing purposes. Banks require estates to have an EIN in order to open a bank account in the estate's name. To obtain an employer identification number, you can submit a free online application (Form SS-4) or apply by mail or fax with the IRS. You can also choose LegalZoom to file the EIN documents for you.

Step 3: Bring all required documents to the bank

Once you have the estate's EIN, gather all the required documents and bring them to the bank. Contact the bank in advance to ensure you arrive with the appropriate documents, but you'll likely need to bring a notarized or certified copy of the death certificate and proof of your identity, such as a driver's license or passport. You'll also need the decedent's legal name and Social Security number. Bank policies vary as to what documents are required, but all will ask for the court document naming you as the estate's executor or administrator. You can provide letters of testamentary or probate court documents to prove you have the authority to oversee the estate. 

Step 4: Open the estate account

Fill out all the required forms and gain access to the account.

Executors can use the account to deposit any payments made to the estate and to pay any ongoing estate debts. Once probate is complete and the final distribution of the estate funds is permitted, the executor can make the final payments to all of the beneficiaries, after which the estate account can be closed.

How much does it cost to open an estate account? 

Since an estate account is simply a bank account in the estate's name, associated costs are similar to those for any other kind of bank account. Depending on the financial institution, it's often free to open an estate account. However, in many cases, the fee might simply be the cost of ordering checks so you can make payments from the account. 

Aside from opening costs, be sure to inquire about any other fees or payments associated with the account, such as mandatory minimum deposit requirements.

The best banks to open an estate account

With a better understanding of how to open an estate account, you're probably wondering which bank to choose.

Typically, it's best to open an estate account with the same financial institution the decedent used in the same state where they resided. Since the decedent was already a member of that bank, it can make for a more seamless transition and provide easier access to all their accounts and estate funds.

As for some of the best banks for opening an estate checking account, the following are some popular choices:

• Bank of America Estate Services
• Charles Schwab's Schwab One® Estate Account
• Fidelity Estate Account

Closing an estate account

An executor needs to close probate before an estate account can be closed. The process for closing probate depends on the state in which probate takes place, but it generally involves a final accounting that shows all the transactions that have affected the estate's funds during the probate process. This final accounting is typically made after payment of all the estate's debts and taxes.

Once probate is closed, the executor can make final distributions from the estate account to the beneficiaries, after which the account itself can be closed. In most cases, this process may be as simple as filling out forms required by the bank.

FAQs

In what state should I open an estate account?

It's best to open an estate account with the decedent's bank in the state where they lived. This is typically the state and county where the probate is opened.

Should I open a checking account or a combined brokerage account?

The kind of account you open may depend on individual circumstances, so it's best to consult with a professional for guidance, which can include an independent attorney from LegalZoom’s legal network. They can help you determine what account is best suited for managing your loved one's estate.

Can I write a check to myself from an estate account?

Yes, if you are the executor of an estate account, there are certain circumstances in which you can write yourself a check with funds from the account. For instance, if you are a beneficiary, you can write yourself a check for the rightful amount established in the will. You may also write yourself a check for executor fees associated with managing the estate and reimburse yourself if you cover expenses related to the estate, such as funeral costs.

However, it's essential to keep accurate records of these payments to yourself to demonstrate transparency and ensure that you're not misusing or mishandling the estate's money.

Can money in an estate account be invested?

Yes, there are instances where an executor can invest money from an estate account, but they must follow state rules and regulations. For example, the executor must consult the will's instructions and abide by county probate court guidelines. In some cases, they may even need the consent of the beneficiaries before making an investment. Furthermore, any investments the executor makes must be responsible ones made in the best interest of the estate.

Can estate checking accounts earn interest?

Yes, some estate checking accounts earn interest, but not all of them do. While these checking accounts may not earn a lot of interest, if there's a significant amount of money in the account, it could accrue quite a bit in interest.

When opening an estate checking account, inquire whether the financial institution offers interest-bearing accounts or non-interest-bearing accounts.

Belle Wong, J.D., contributed to this article.