I’ve been talking a lot about Coronavirus here lately, but today I want to step away from that for a moment and talk about the probate bank account.
Probate Bank Account: What is it and Why Is It Needed?
We’ve talked in the past about the probate process and the role of the executor of the estate when it comes to the probate process. We’ve even talked about some sticky estate planning situations and how to handle them. Today, though, I want to talk a little bit about the probate bank account.
What is a Probate Bank Account?
When you are in charge of someone’s estate after they die, you have many responsibilities and one of those responsibilities includes managing estate finances. A probate bank account or an “estate bank account” is a bank account where you can collect any payments made to the deceased person as well as to pay out any expenses owed by the estate – for example filing the final tax return of the deceased person.
The probate bank account works to keep estate funds separate from other funds – for example, as the executor of the estate you wouldn’t want to combine estate funds with any personal funds (this could get you into a LOT of trouble!) Having a probate bank account also makes accounting for the estate during probate much more simple.
What Kind of Account Should Be Set Up?
When you set up a bank account for the estate, a basic checking account is the easiest account to set up and use to pay out of, but, if you expect the probate process to take longer than a year, it may be better to set up an account that allows you to handle cash, but also allows you to manage investments. This allows you to wisely invest estate funds to prevent estate funds from being depleted during the probate process.
Managing Out of State Estates
If you are the executor of the estate for an estate that is in another state – for example, if you live in Georgia and you are the executor for an estate in Florida, it’s to your benefit to set up the account for the estate in Florida. This makes things much simpler if the estate does have an income because it means that you will only need to file a state tax return in the state of Florida rather than having to file in both Georgia and Florida.
How Do You Open an Account?
To open a probate bank account for an estate, you must first obtain a taxpayer ID number for the estate. This number makes the estate the taxpayer rather than any specific person. You can obtain a tax ID number by filing the IRS Form SS-4, Application for Employer Identification Number. You can do this quite easily online. Simply follow the instructions on the form and if you need assistance, call the IRS number given to you. You may also call this number after you have filled in your form to get a tax ID number that you can use immediately. If you do get a tax ID number over the phone, be sure to write this number on the form and then fax or mail it to the IRS. If you are in no rush, you may also simply file the form by mail and wait approximately four weeks to receive your ID number in the mail.
What Happens Once the Probate Bank Account is Open?
Once you receive your tax ID number and have set up the estate bank account, you will need to transfer funds from the bank accounts of the deceased person into the new estate account. Any money that is generated by the estate will be paid into this account. Any money that is paid to the deceased person should also be paid into the estate account.
When Can Money From the Account Be Used?
Money that has been deposited into the estate account can be used to pay estate expenses, estate taxes, estate debts, fees for probate court filing, attorney fees for the probate process, and accountant fees for the estate accountant.
Tracking the Transactions
Every single transaction that takes place with the estate bank account must be accurately notated. It’s best to notate these transactions as soon as they happen so that account records are as accurate as they can be. For each transaction, you should make note of the amount of the transaction, the date that the transaction was made, who that transaction was with, and what the transaction was for.
As an executor of the estate, it is your job to manage financial matters of the estate responsibly. Having accurate records of every transaction will ensure that you have proof that you have fulfilled your duty. Having these records also means that if you are questioned by or accused by any of the beneficiaries of the estate in regard to your management of estate funds, you can provide those records to back up your management of the estate.
Probate Bank Account Questions or Comments?
Have questions about the probate bank account system or comments that you’d like to share with other readers? I encourage you to leave a comment below!