When you think about wills and beneficiaries, odds are the first thing that comes to mind are major assets like a home or cottage. But the truth is, having a plan for your money after death is just as important for your everyday bank accounts.

What happens to a bank account after death - including the money inside and whether it’s closed or left open - can have a huge impact on those who you leave behind. And, without a plan in place, can add more confusion and financial stress to an already emotional ordeal.

Below, we break down the details of what happens to your bank account when you die.

When you have a bank account that’s just in your name

If you have a will

If you’ve planned ahead and signed a will, everything is a whole lot simpler.

With a will, you’ve clearly and legally laid out how the money in your bank account (along with any other assets you own) should be distributed according to your wishes following your death. As part of your will, you would’ve also carefully chosen an executor who’ll be tasked with the major responsibility of managing your affairs after your death and executing the wishes you’ve set in your will.

So, what happens to your bank account?

First, the executor you appointed must notify your bank you’ve died as soon as possible by providing proof, usually in the form of a death certificate. Your bank account will then be temporarily inaccessible and the money will be off-limits until your will is legally evaluated and other administrative details relating to your assets are hashed out in what’s known as the probate process.

Since your money is frozen during probate, your bank may use the funds in your account to cover more immediate expenses like funeral costs or any bills you owe so those who you leave behind don’t have to pay out of pocket until your account is accessible again.

Next, the bank account will be completely closed (if it hasn’t been already) and the money in the account will become part of your estate, which is an umbrella term that refers to all the assets under your name. Any uninsured debts you owe to creditors (think credit card balances) will then be paid off from the money in your estate. Your executor will need to advertise to any potential creditors - if an executor does not advertise and a creditor comes forward, the executor may be personally liable for payment of the debts to the extent that assets were distributed. And, finally, once debts are paid off, any remaining cash that was in your bank account will be distributed to the beneficiaries who you’ve personally chosen in your will to inherit your money.

If you don’t have a will

When you pass away without a will, you’re considered to have died intestate.

What does that mean?  

Since you haven’t claimed how you’d want your money to be distributed after your death with a will, provincial government laws will kick in and decide who gets the money in your bank account on your behalf. While intestate laws do vary by province, they all generally prioritize giving the money you leave behind in your bank account to your immediate family or blood relatives.

Intestate laws can be extremely convoluted and will mean those who are close to you but aren’t part of your immediate family - like a common law partner - won’t receive any of the money in your bank account unless there’s legal paperwork to prove otherwise (here’s where a will would’ve come in handy).

When you die, the provincial court system will usually appoint an Estate Trustee on your behalf who’ll be responsible for managing your affairs. Legally, direct relatives receive precedence but others, like the deceased's common law partner, could technically apply to be an Estate Trustee if the immediate family and court agree to it.

Your Estate Trustee or any other family member will be required to notify the bank of your death with legal proof as soon as possible, and the process goes as follows:

  • Your account will be frozen or closed, and the money in the account will be inaccessible until the legal and administrative details around your assets are sorted out in the Probate Process (note, this process will take a lot longer without a will in place).
  • During probate, your bank may use the funds in your account to cover more immediate expenses like funeral costs so those who you leave behind don’t have to pay out of pocket.
  • Next, the money in the account will become a part of your estate (which includes all the other assets you own)
  • Debts you owe to creditors will be paid out from your estate
  • Finally, once debts are paid, any remaining cash that was in your bank account will then be distributed to your immediate family

While intestate laws do vary by province, as covered earlier, they’re all generally the same in that they’ll give all the money you leave behind to your immediate family or blood relatives by default. Usually, the money isn’t equally distributed either - which means common law partners and most family members will be completely left out. For instance, in Ontario, your spouse would automatically receive all or most of your money, while if you’re not married and don’t have children, your parents would receive one hundred percent of your inheritance. We’ve broken down the details of what happens when you die without a will - by province - here.

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What happens if you die and have a joint bank account

If you have a joint chequing or savings account, things can play out quite differently - depending on who you opened the account with, the specific terms of the account, and your province.

The right of survivorship (joint account with your spouse)

Excluding Quebec, most joint bank accounts in Canada held between legally married couples include a feature called the right of survivorship.

With the right of survivorship, your account will remain open in the event you die and your spouse - as the surviving joint account holder - will automatically inherit ownership of the bank account and all of the money inside.

The right of survivorship on a joint bank account between spouses can be in place without a will, and in fact, exists separately from wills altogether. That’s because by signing the right of survivorship, you’ve both already made your intentions clear that if either of you were to die, the other should inherit the bank account directly. The bank account won't be grouped as part of your estate with your other assets when you die, and whether or not you have a will, no other beneficiaries or family members will be entitled to your bank account aside from your surviving spouse.

The details of the right of survivorship should’ve been covered by your bank when opening the account, but if you aren't sure about the specifics, reach out to your bank to check if it’s set up for your account and if the proper documentation has been signed.

Joint account between non-married people

If you hold a joint account with anyone else aside from your legally married spouse - be it your common law partner, parent, or child - or you live in Quebec, the right of survivorship won't kick in.

Unless you have sufficient documented proof that clearly states it was your wish to give direct ownership of the account to your joint account holder after your death (usually in the form of a gift), the account will be frozen or closed after you die.

Finally, the money in your bank account will then follow the same process as if you were the sole account holder - as outlined in the section above. Your bank account will be closed, the money in your account will become part of your estate and will be used to pay off any debts to creditors you owe, and any remaining cash will go towards your beneficiaries - who will either be people you chosen if you have a will or an immediate family member or blood relative by default if you didn’t sign one.

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Do you owe taxes on a deceased person’s bank account?

In Canada, there’s no such thing as inheritance tax after someone dies. However, if the account in question was a savings account for example and did earn interest in the year of the person’s death, the gains may have to be filed as part of the deceased person’s final tax return.

Checklist of the documents and information you’ll need to close the bank account of a deceased person

If you’re responsible for handling the affairs of a loved one who has died, here’s a list of documents and information you’ll need in order to close their account.

  • The deceased person's bank account details including their debit card or credit cards
  • Details about the deceased person’s address, phone number, and date of birth and death
  • Original, notarial or certified copy of the death certificate
  • Original, notarial or certified copy of both the will and probated will (if one has been signed)
  • Burial certificate or a funeral director’s Statement of death
  • Copy of a physician’s’ statement of death or coroner’s report
  • A declaratory judgment of death by a court
  • Proof of Executor or Estate Trustee status (along with your own valid government ID like a driver’s licence)

The bottom line

The money in your bank account can make a huge impact on your loved ones. Having a plan in place can help avoid confusion and avoid added financial stress.

Everyone’s financial situation and families are different, but you’ll feel better having a plan in place for your money after death.  

Start your will for free today and make sure your assets are distributed how you want them to be.

Guest post by Hyder Owainati, Content Writer at Ratehub.ca. Ratehub.ca is Canada’s leading comparison site for mortgage rates, credit cards, bank accounts, investing products and insurance rates.