What Happens To Your Bank Account When You Die?
When it comes to getting your financial house in order, drafting a Will can often fall off the radar. In fact, over 50% of Canadians don’t have a will, with many assuming they’re either too young to need one or don’t have enough assets to make one worthwhile.
In reality, though, drafting a Will is necessary for everyone, even if it’s just to manage the money in your everyday bank account. And without your wishes legally put on paper, accounts can be frozen, loved ones can lose out on money, and those who you leave behind will have to deal with added financial and administrative stress.
What happens to your account right after your death
Ideally, your bank should be notified of your death as soon as possible with proof in the form of a certified copy of a death certificate (though a burial certificate or coroner’s report can suffice).
Your bank must be notified
If you’ve drafted a Will before your passing, you would’ve already assigned someone who you trust deeply to take on the role of executor to take action and handle your financial accounts and notify your banks in the event of your death.
With no legally-binding Will, someone close to you (likely a family member or friend) needs to apply to court to be appointed as your estate trustee since no one was chosen by you.
Single versus joint bank accounts
Whether you have a single or joint bank account can have a profound effect on how your assets are handled after your death and the role of a Will.
Single bank account
If the bank account is solely in your name, it may be temporarily frozen until the legal requirements (aka the probate process) are sorted out in the provincial court system.
A frozen bank account is never ideal and can cause bills to pile up and cash flow problems for anyone who may be financially dependent on you. The good news is some banks do make exceptions by making a portion of the funds in your chequing account accessible to pay for critical costs - like funeral expenses or utility payments - but that’s not always guaranteed.
If you’ve prepared a Will, the probate process will be considerably speedier since an executor has already been chosen by you in advance.
However, without a Will, things get murkier and everything from legal disputes to appointing an estate trustee can take more time. That means your account may be frozen for longer, adding further financial roadblocks and headaches for those who you left behind.
The rules are completely different if you have a bank account held jointly with a spouse you’re legally married to. Due to what’s known as the “right of survivorship”, your account will be kept open after your death and all the funds inside will become the sole property of your spouse.
In fact, with the right of survivorship, your Will won’t have any impact on the assets in this account. The spouse automatically gets it all, (at least, everything in your joint bank account).
The right of survivorship: does come with a couple of asterisks though.
It doesn’t apply to the province of Quebec.
The laws vary when it comes to joint accounts not held between legally married spouses. For example, joint accounts held between elderly parents and adult children or held between common-law partners
If you currently do have a joint account with your spouse, we suggest double-checking the fine print to ensure the right of survivorship is currently in effect.
What happens to your money
In the case of most bank accounts (excluding joint accounts held between married couples,) your executor will be responsible for closing this account and transferring the money into an account in the name of the estate.
The money in your account will become part of your estate
Your estate represents everything you own—from real estate and cars to investments. It’s essentially your total net worth.
Following your death, the money in your estate will first be used to pay back any lenders or creditors you owe (think credit card companies or car dealerships). Any taxes owed in your name will also be paid off from your estate.
Once all those payments are settled, what remains from your estate will be distributed to the beneficiaries who you left behind.
With a Will versus without a Will
A Will removes any room for confusion around who gets what following your death.
You’ll be able to list out your beneficiaries and distribute the assets that make up your estate (including money from your bank account) exactly as you wish.
Don’t have a Will? Then intestacy laws will apply and your assets get distributed between the members of your immediate or extended family according to the laws in your province. And that’s not ideal. Intestacy laws serve as a rigid solution to a deeply emotional and personal decision, and likely won’t align with your dying wishes or accommodate for your unique situation.
For instance, intestacy laws will typically state only direct blood relatives are entitled to your assets.
When someone who is legally married, and has more than one child, dies intestate, the surviving spouse is entitled to the first $200,000 of the estate and the remainder is divided ⅓ to the spouse and ⅔ to be split equally between the children. If there is no spouse or children, then assets are divided between next-of-kin, with priority based on proximity of blood relationship to the deceased; this includes parents (if any), siblings (if any), then nieces/nephews (if any).
With intestacy laws, common-law partners, minors who are not your children, and close friends can be left completely out dry.
If you have a joint account
If a person has a joint account with someone who they are legally married to, then the spouse will directly inherit all the money from the bank account right away after their death provided right of survivorship terms were agreed upon at the time the joint account was opened.
The money in the bank account will never join the estate, won’t be affected by intestacy laws, or have to be distributed to any other beneficiaries. Plus, since funds are directly passed onto the married spouse and never become a part of the estate, none of the money in the account will have to be used to pay off debts or taxes owed in the deceased’s name.
Note though, these rules don’t apply in Quebec or for joint bank accounts held between people who aren’t legally married.
Will any taxes be owed on your account
Two things are guaranteed in life: death and taxes. The silver lining is there aren’t any inheritance taxes in Canada.
Generally speaking, any tax payable (i.e. taxes on capital gains) will be paid by the estate prior to the distribution. For cash that is sitting in an account, not growing, there likely won’t be tax to pay on that money. If the account is a high-interest savings account), it’s possible there could be some taxes payable by the estate, which will be accounted for on the deceased’s final tax return, known as the “terminal return”.
Conclusion: Having a Will is important to protect the money in your bank accounts
Having a Will isn’t just for real estate and investment portfolios but to protect your bank accounts too. And with a Will prepared in advance, the probate process will be faster, money in your account will be accessible sooner, and you’ll take the pressure off loved ones you leave behind while also ensuring any money left behind is distributed according to your wish.
*This blog is for general educational purposes and doesn’t serve as legal advice.
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