Opening and Withdrawing from an Estate Account
One of the greatest advantages of becoming an executor or estate administrator is managing and having control of the estate bank account. Non-fiduciary beneficiaries and heirs have no access to the estate’s finances and have no deposit and withdrawal power. But with so much control comes lots of responsibility. There are many instances where a fiduciary is removed by the Surrogate’s Court for mismanaging estate assets or self dealing. Opening, managing and withdrawing from an estate bank account is a serious thing and should be treated as such, but the following are a few code rules to guide you.
Getting Appointed as the Estate Fiduciary
Lets get the obvious (or not so obvious) out of the way first: Yes, you must officially be appointed by the Surrogate’s Court as the executor or administrator before you can open a bank account. A declaration in the decedent’s will naming you as the executor is not enough.
Securing this appointment entails the filing of a probate petition (deceased died with a will) or administration petition (no will), and all necessary documents by you or your NY estate lawyer with the Surrogate’s Court where the deceased lived or owned real estate. For example, if the decedent lived in Brooklyn but died in a hospital in Queens, the proceeding must be filed in Kings County Surrogate’s Court. When papers are in and the filing is marked complete, the file is sent to the judge’s chambers for review and final seal of approval. When letters testamentary issue, consider yourself officially the personal representative of the estate. Your title may be Administrator or Executor and your letters constitute your badge of authority to deal with all aspects of the estate.
Opening an Estate Bank Account
If the estate consists of cash, cash equivalent assets or assets that will be converted to cash (sale proceeds of a home), the fiduciary must apply for an Employer Identification Number (EIN) from the IRS in order to open a bank account in the name of the estate. The EIN is the equivalent of a social security number for the estate entity. You can apply for an EIN online at irs.gov or your NY probate lawyer can apply for you. When completing the application, it’s important to identify the entity as an “estate” so that you receive proper tax treatment by the IRS.
To open an estate bank account, the fiduciary will need the EIN, certified letters testamentary (or letters of administration), and a certified copy of the death certificate. Some bank institutions will accept a regular copy of the death certificate.
Understandably, oftentimes the executor is in a rush to open an estate bank account on the mistaken belief that assets belonging to a decedent escheat to New York State if they remain unclaimed long enough. Rest assured that this is not true. After a year or so of inactivity on the decedent’s accounts, financial institutions transfer account balances to New York Unclaimed Funds where the funds are held by the Office of Comptroller. Retrieving assets from Unclaimed Funds is a longer process, typically ranging from 90-120 days, as opposed to liquidating from a banking institution directly, which regularly takes 1-2 days. Association with Unclaimed Funds can at time be unavoidable, as there may be significant delays in the grant of probate and letters issuing to the executor due to a will contest, complications or errors in the probate papers filed, and most commonplace – Surrogate Court backlog.
Withdrawing from an Estate Bank Account
A fiduciary’s primary job is to collect assets, pay debts, and distribute the assets to the decedent’s beneficiaries or heirs-at-law. Before the stage of distribution, there’s the matter of paying ordinary and necessary expenses. A fiduciary may use the estate bank account for monthly mortgage payments, co-op maintenance charges, junk removal, utilities, debts of the decedent, taxes, pay legal fees, and other ordinary and necessary expenses related to the estate or estate property.
The estate account cannot be used as piggybank or an emergency fund for personal expenses. All monies withdrawn and paid out must be accounted for. To explain, before distribution to the parties, our law firm prepares an Informal Accounting based on bank statements and receipts provided by the executor. The Accounting itemizes all assets collected, expenses paid out, fiduciary commissions due, legal fees, and the final distribution amounts due to the heirs or beneficiaries of a will. This document is then circulated to the parties for review and approval. Deep concerns by any beneficiary or heir about the management of the estate bank account can lead to a judicial accounting – which is very time consuming and costly.
When withdrawing money from an estate bank account, its important to keep cash withdrawals to a minimum. Paying in cash can sometimes be unavoidable and cost-effective, for example, paying a local handyman or a cleaning lady. It’s good practice to always have a paper trail by paying by check or having an invoice to corroborate cash withdrawals.
Oftentimes, fiduciaries run into trouble by withdrawing advances of their inheritance and/or executor commissions from the estate bank account. Do not withdraw any advances without first consulting with your NY probate lawyer! Furthermore, if you receive notices of any debts owed by the decedent, speak to your estate attorney to ensure that only legitimate debts are paid.
Closing an Estate Bank Account
Depending on the value of the estate, we typically advise clients to leave some money in the bank account for one year after distribution, in the event new liabilities arise. The amount of the contingent liabilities fund will depend on the size of the estate. It can be $500 or $100,000. Consult with your probate attorney on the appropriate amount to leave in the account. When the final distributions are made, close the account with your banker as soon as possible to avoid monthly service charges. No filings concerning the closing of the estate bank account is necessary with the New York Surrogate’s Court.
If you have questions regarding this topic or need legal representation by a New York probate lawyer, contact Mishiyeva Law, PLLC at 646-233-0826.
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