What Happens To Bank Accounts After Death In Canada?

When a loved one passes away, grieving families are often faced with the burden of sorting out the deceased’s financial affairs. Bank accounts can be particularly complicated, especially if the owner does not leave clear instructions in their Last Will and Testament. It’s essential for surviving relatives to thoroughly understand what happens to Canadian bank accounts after someone dies to properly close accounts and access funds. This guide will explain the key steps, required documents, legal considerations, and various factors determining what happens to sole and joint bank accounts when a holder passes away.

What Happens To Bank Accounts After Death In Canada?

Before digging into the details, here is a quick overview of the main possibilities for both sole and joint bank accounts when an owner dies:

• Sole account – Funds can go to a named beneficiary or be handled by the estate executor as part of probate
• Joint account – Typically transfers to the surviving bank account holder or becomes part of the estate if no rights of survivorship
• No will – The Province’s intestacy laws decide the distribution of bank account funds
• Beneficiaries – Receives account funds directly, bypassing probate
• Estate executor – Uses account funds to settle debts and distribute any remainder to heirs

The following sections will explore these scenarios more thoroughly.

What Happens To Sole-Owned Bank Account After Death?

For bank accounts with only one owner, there are two main possibilities after the account holder dies – the funds can either go directly to a named beneficiary or be handled by the executor of the deceased’s estate as part of the probate process. The outcome depends primarily on whether or not the original account holder designated a specific beneficiary.

Transferring Funds Directly to a Named Beneficiary

Many banks allow customers to name a beneficiary who will inherit the contents of a bank account upon the original owner’s death. This type of account is sometimes called a “payable on death” or POD account.

If a beneficiary has been properly designated, the bank will release the funds to that individual after being notified and verified of the original account holder’s death, usually by providing a certified copy of the death certificate. Once the funds are transferred, the bank typically closes the account permanently.

This allows the beneficiary immediate access to the inherited funds without having to go through probate. Banks do not have to wait for a will to be validated or an executor appointed, as the account holder already made their wishes clear by naming the account beneficiary.

Account Funds Handled by the Estate Executor

If no beneficiary is named on a sole bank account, the money can’t be directly released after the account holder dies. Instead, the deceased’s will must be submitted to the probate court, and an estate executor must be officially appointed to administer the estate.

The executor becomes responsible for utilizing the money remaining in the deceased’s sole bank accounts to repay any outstanding debts and then distributing whatever funds are left over according to the directives in the will.

Without a will, the probate court judge will appoint an administrator to divide up the estate assets, including bank account funds, by following the province or territory’s intestacy succession laws. The surviving spouse usually receives a large portion of an estate under these laws, with any remainder passed to children, parents, siblings, or more distant relatives accordingly.

Without a will or named beneficiaries, accessing bank funds can be delayed for months until the probate process is fully completed. This demonstrates the importance of planning ahead with clear instructions for account funds.

What Happens To Joint Bank Accounts After Death In Canada?

Joint bank accounts with multiple signers operate differently after a bank account holder dies compared to sole accounts. Most joint accounts between married spouses or common-law partners include a special provision called the “right of survivorship” that affects what happens when one owner passes away.

How Right of Survivorship Works

The right of survivorship grants the surviving partner automatic access and ownership of a shared account when their co-signing spouse dies. It permits the transfer of the deceased’s interest in the bank account funds directly to the surviving joint account holder, bypassing probate.

With this provision, the bank account does not need to be closed, nor does it become part of the estate. The surviving partner can carry on using the account exactly as before. This simplifies access to necessary bank funds during the difficult transition after a partner’s death.

Joint accounts between spouses typically have the right of survivorship automatically unless indicated otherwise. However, bank account holders should still double-check with their bank and make sure proper documentation was signed when the account was opened.

Notifying the Bank of a Death

While the right of survivorship allows a smoother transition of joint account ownership, it’s still important for the surviving account holder to notify their bank of the partner’s death. This ensures the bank can document the change and allow uninterrupted access to funds.

Some banks temporarily freeze joint accounts after being informed of a co-owner’s death until sufficient documentation is provided, even if a right of survivorship is in place. Promptly notifying the bank and providing a death certificate, will, and any other requested documents will minimize delays.

Insurance Coverage Changes

One other consideration with joint accounts and rights of survivorship is that the amount of deposit insurance coverage changes when an owner passes away. Joint accounts qualify for up to $500,000 in deposit insurance coverage at credit unions and banks.

However, if one joint account holder dies, coverage eventually decreases to the $250,000 maximum for individual accounts. The Deposit Insurance Corporation provides a 6-month grace period to give the survivor time to restructure accounts before the lower coverage takes effect.

What Happens if Joint Accounts Don’t Have Right of Survivorship?

If no right of survivorship provision exists, a joint bank account is handled differently when one owner dies. This may occur in any of the following situations:

• Joint account holders are not married spouses
• The account is held in Quebec (which prohibits rights of survivorship by law)
• Owners opted out of the right of survivorship when the account was opened

Without the right of survivorship in place, the deceased’s ownership share of a joint bank account does not automatically transfer to the surviving account holder. Instead, the account is frozen as soon as the bank receives notice of an owner’s death.

The deceased’s portion of the bank account funds form part of their estate and must go through probate, the same as with a sole account. An executor will utilize the portion of joint account funds to settle any debts and distribute the remaining amount according to the will’s instructions.

For married joint account holders without survivorship rights, the situation can become especially complicated. A spouse may expect to retain full joint account ownership, only to find themselves locked out pending probate. Documenting wishes clearly is essential.

What Happens To Bank Account When Someone Dies Without a Will?

When someone dies without a will in place, they are considered to have died “intestate” in legal terms. This complicates the handling of the deceased’s bank account funds.

Without a will to specify exactly how bank account assets should be divided after death, provincial or territorial intestacy succession laws automatically come into effect and determine who inherits the money.

Appointing an Estate Trustee

Under intestacy law, the probate court oversees appointing an estate trustee, also known as an administrator. This person is responsible for managing the distribution of the deceased’s entire estate, including bank account funds.

The estate trustee also handles submitting the required documentation to banks, including:

• A certified copy of the death certificate
• Their personal ID validating identity
• Any court documents regarding their estate trustee status

Banks wait for the trustee to be appointed before releasing the contents of the deceased’s accounts. This can result in lengthy delays compared to transfers to named beneficiaries.

Distribution Under Intestacy Laws

Once appointed, the estate trustee distributes bank account funds and all other estate assets based on each province or territory’s unique hierarchy of heirs.

While intestacy laws vary across Canada, the following heirs typically receive priority:

• Surviving married spouse – Receives full or majority share, especially if children are also shared heirs.
• Children – Remaining funds are divided equally amongst living children after the spouse’s share.
• Parents, siblings, or other relatives – Further distribution if no surviving spouse or children.

Without a will, distant relatives may end up benefitting partially from bank account funds, while closer friends or common-law partners receive nothing. Having an up-to-date will prevent complications and ensure account funds go where the deceased wishes.

How Banks Are Notified of an Account Holder’s Death?

Before any transfers or distribution of bank account funds can begin, the deceased’s financial institutions must first be notified and verified of their death. This section covers the most common ways banks first learn an account holder has passed away.

Notification from the Family

The most direct and usually the fastest way a bank learns of a customer’s death is from communication by a close family member, friend, or executor/trustee of the deceased’s estate.

Whoever is handling the estate should contact the bank as soon as possible and provide the branch with:

• An original or certified copy of the death certificate as formal verification
• The account details of the deceased, including account numbers
• Any related court documents regarding the estate, if available, such as a will or executor assignment

The bank can then formally convert the accounts of the deceased into estate accounts and properly freeze or close them depending on the type of account. Without the death certificate and estate documentation, banks will not release funds.

Informing a bank promptly of an account holder’s passing minimizes disruptions to bill payments or other hardships for family members waiting for account access.

Notification from the Government

Aside from direct notification by the surviving family or associates, banks will also eventually learn of a customer’s death after the government suspends benefit payments.

Two ways this government notification occurs:

1. Cancelled Social Security deposits

When someone who receives monthly Social Security payments dies, the Social Security Administration is informed of their passing and suspends future benefit deposits. This process usually begins with the deceased’s funeral home director reporting the death.

Once payments stop, the Social Security Administration specifically notifies any banks where benefit cheques are being deposited each month. This acts as a second layer confirming the death of the bank account holder.

If payments accidentally continue after death, the executor must return checks to Social Security and confirm the bank account is frozen. Retaining payments is considered fraud.

2. Notification of final tax return

An executor may also directly report a death to the Canada Revenue Agency when filing a deceased person’s final tax return. The CRA then notifies federal agencies like Veterans Affairs Canada, which, in turn, communicate with banks holding accounts for their benefit recipients.

In summary, whether from mourning families directly or through ceased government payments, banks do eventually learn of a deceased account holder’s passing, triggering the account closure and distribution process.

What steps can account holders take to avoid complications?

Given the complexities that can arise after death, what steps can account holders take to make the process easier for bereaved families? The following planning tips can help avoid complications and ensure bank accounts are smoothly addressed:

Designate Named Beneficiaries

One of the best ways to provide clarity on sole bank account funds is to directly designate beneficiaries. As covered earlier, this allows those beneficiaries immediate access to the money upon the original owner’s death since the bank can release it straight to them.

No waiting on probate or legal debates about the will or estate. Account holders should check with their banks and complete any necessary paperwork to assign beneficiaries.

It also provides certainty if disputes arise over other assets, as beneficiaries legally take precedence for the named accounts. An account holder can easily change or add beneficiaries later if circumstances change.

Create a Legal Will

Crafting a will through an estate planning lawyer is strongly advised for all adults, especially homeowners or those with children. This central document provides definitive guidance on how all of one’s assets should be handled after death.

A legally binding will avoids any confusion by clearly spelling out the following:

• Identifying beneficiaries for specific assets like property or investments
• Specifying any bank accounts to be transferred to heirs
• Distributing remaining assets according to the account holder’s exact wishes
• Assigning an executor to oversee fulfilling the will’s directives

Without a will, bank account funds may go to unintended heirs. Keep wills updated to reflect major life events.

Consolidate Accounts

Those who handle an estate often struggle to identify all the financial accounts held by the deceased. To assist executors, account holders can take steps to consolidate accounts prior to death.

Closing extraneous bank accounts streamlines the paperwork survivors must complete with each institution. It also reduces the chance of funds being stranded in obscure accounts that heirs never uncover.

Banks may transfer dormant accounts with small balances to the Bank of Canada after set periods, forcing heirs to apply for the return of those assets. Consolidating provides clarity and avoids this issue.

Add Joint Account Holders

Married couples can simplify joint account access after death by ensuring their accounts are properly registered with rights of survivorship. Unmarried couples could consider making accounts joint instead of sole if they wish the partner to retain use of the funds after one dies.

For some accounts, account holders may provide specific loved ones with limited account access prior to death using the power of attorney documents or naming them as a secondary joint holder. This authorizes assisting with bill payments as needed if health fails.

Communicate Intentions

In addition to making legal arrangements directly with banks, account holders should communicate wishes regarding bank account funds to family members while alive and competent.

Discussing intentions for distributing any sole accounts not jointly held. Sharing where documents like wills and powers of attorney are stored. Providing these details openly to heirs and beneficiaries will avoid misunderstandings.

Ensuring proper planning well in advance is the key to simplifying bank account closures after death.

What documents are required to close a deceased’s bank account?

Closing bank accounts for a deceased person requires submitting specific documents to their financial institutions. The executor, estate trustee or next of kin handling the arrangements should be prepared to provide:

Death Certificate

• An original, notarized, or court-certified death certificate is needed in every case to verify the account holder’s passing

Will and Probated Will

• A copy of the most recent legal will, and the probated will if the estate is going through probate
• Indicates how bank account funds should be distributed from the estate

Executor or Administrator Identification

• Photo ID for whoever is managing the estate and account closure
• Verifies their authority and identity as executor or administrator

Other Supporting Documentation

• A burial certificate or statement from a funeral director
• Physician or coroner statement confirming cause of death
• Court documents appointing an administrator if no will exists

Banks require this paperwork to legally validate the death and identify who has the authority to manage the deceased’s remaining accounts. Accounts cannot be closed until proper documents are submitted.

Are There Tax Implications for Transferred Bank Accounts?

While Canada does not have an inheritance tax on assets like some countries, there can still be tax considerations when bank accounts change hands after death:

• Bank interest earned up until the date of death must be reported on the deceased’s final tax return if that income has not yet been declared.
• RRSPs and other registered accounts are taxable when transferred to heirs outside of transfers between qualifying spousal accounts.
• Beneficiaries who receive non-registered investment account proceeds may face capital gains taxes if the value increases.
• Consult a tax professional when managing significant account transfers.

Executors and account heirs should consider potential tax implications when closing accounts.

Read more: Inheritance Law in Canada

What Should Be Considered for Specific Account Types?

While this guide focused on typical personal checking and savings accounts, the death of an account holder can be more complex for certain assets like:

Registered Savings and Investments – If the deceased’s RRSP, RRIF, or TFSA funds are being transferred to a surviving spouse or partner, special spousal rollover rules apply to defer taxes. For other beneficiaries, registered funds face taxation upon payment out.

Business Accounts – The death of a sole proprietor can be very disruptive for active companies, making succession planning critical. Partnership agreements dictate business account changes. For corporations, shares transfer to heirs.

Estate Accounts – Banks may open special short-term estate accounts where an executor deposits funds for bill payment until probate concludes. These simplify money management during asset distribution.

Foreign Accounts – Death procedures for accounts held in other countries vary. Taxes or court processes may differ. Legal counsel may be needed.

Understanding how bank accounts are handled after death is a vital part of estate planning and settling a loved one’s affairs. Including clear instructions in will can help avoid complications and ensure your wishes are followed. Explore more articles on this topic:

• DIY Will Kits and Templates in Canada
• Receiving an Inheritance in Canada
• Government Funeral Assistance in Canada
• Writing Heartfelt Condolences Message
• How To Find An Obituary For A Specific Person in Canada

Summary

Given the complex legal and tax issues that can arise, it’s best for account holders to take proactive steps well ahead of time to make the handling of bank accounts after death as smooth as possible. Having clear beneficiary designations and legally valid, up-to-date wills in place can help avoid delays, confusion, and family disputes down the road.

While challenging, being aware of the key steps and documents involved after death, whether it’s a sole or joint account, ensures families properly close accounts and distribute funds according to the deceased’s wishes. Banks ultimately require standard forms like death certificates and wills before accounts of the departed can be closed out and the remaining funds released to rightful heirs or beneficiaries. A little advance planning goes a long way toward easing the burden for those left behind.

Frequently Asked Questions About What Happens To Bank Accounts After Death In Canada

How long does it take for a bank to release funds from the account of a deceased person?

Banks typically release funds from a deceased person's account within 1-4 weeks after receiving the required death certificates and paperwork from the estate executor or administrator. The process may take longer if multiple accounts are involved.

What should you do if Social Security deposits go into a deceased person's bank account?

Contact the Social Security Administration immediately and return any deposits made after the date of death. Retaining the funds could be considered fraud. Also, notify the bank to freeze the account.

Can a bank place a hold on the account of a deceased person?

Yes, banks will often place a hold on releasing funds from a deceased individual's accounts until they receive the proper estate documentation and confirm the identity of the executor. This prevents unauthorized access.

Do all bank accounts get closed after death?

Sole accounts will be closed, while joint accounts with a surviving owner typically remain open and transfer to the survivor. Special estate accounts may also be opened by a bank's trust department to aid the executor.

What happens to safety deposit boxes after death?

The contents will be inventoried by the bank in the presence of the executor/administrator before assets are released. Some states allow spouses to access jointly held boxes automatically.

Can a bank account remain dormant after death?

Yes, if heirs are unaware of an account's existence or don't claim funds promptly, accounts can become dormant over time. Banks will eventually escheat unclaimed account funds to the government.

Who pays any outstanding debt on the credit card of the deceased?

Generally, the estate of the deceased is responsible for paying off credit card balances unless someone else is jointly liable for the account. The executor uses estate assets for debt repayment.

How does a bank know if a customer's will is legally valid?

The bank will only honour a will that has been submitted to probate court and received confirmation of executor appointment in certified court documents.