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Tuesday, October 11, 2011

If the account is frozen, how does the executor pay for the funeral?

Seminar season is in full swing for me, making me doubly busy but also letting me interact with even more people than I usually do. I always encourage questions from my audiences, and always get plenty of them. I notice than many listeners are interested in the mechanics of  an estate - how things work, who does what, how long things take, etc.

At one recent seminar, there were questions about whether a deceased person's bank accounts are frozen at the time of death, and if so, whether an executor has to pay funeral and other expenses out of his own pocket.

If the deceased owned a joint bank account with right of survivorship, the account won't be frozen. The surviving joint owner will be able to continue to use the account as before. For tax, estate and other reasons, the surviving joint owner should make sure that the bank is alerted of the death of one owner and the name on the account adjusted to reflect the current situation.

If you are one of the thousands of Canadians who owns an account jointly with your parent or your child, be aware that there is no longer an automatic right of survivorship on these accounts. Though you may have been told by the bank when it was set up that there was a right of survivorship, the law has changed right across Canada. An inter-generational joint account where the parent put in the money and later added a child as a joint owner is considered to be held in trust for the parent's estate. That account will be frozen.

If you have an inter-generational joint account, talk to an estate planning lawyer or your bank manager to find out what you can and should do about it while both owners are still alive.

RRSP, RRIF and LIRA accounts are not generally frozen. They are normally paid to the named beneficiary. If they are payable to the estate, they may be frozen until the executor obtains a grant of probate.

The deceased may have had bank accounts or investment accounts in his or her own name. These account are normally frozen on the death of the owner. Once the executor obtains probate, the bank or investment advisor will release the funds to the executor.

As mentioned, the follow-up question to whether an account is frozen is whether an executor must pay estate expenses out of his own pocket. In particular, funeral bills were a concern, as they tend to amount to thousands of dollars. The good news is that if an executor or family member takes the funeral bill to the bank where the deceased held his account, the bank will pay the funeral bill directly from the deceased's money. The money won't be given to the executor or family member; it will be sent directly to the funeral home.

This holds true for other expenses as well, as long as they are obviously bills that the deceased would have had to pay, such as the utilities on the deceased's home. This is up to the individual bank branch to determine, but it's always worth asking.

30 comments:

  1. How come I have to wait 10 days upon signing papers with the bank after I received documents from probate court saying that the probate is good and I am relieved of my duties as personal represenitive

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  2. My Mother asked me to go to the bank with her and when I did it was for her to add my name to her joint account and I signed the papers.After her death the bank phoned me to come up there(6 hours away) and habve my Mother's name now taken off the account as they said the account now was mine..ut her lawyer would not let me have it and said if I did he would not represent us then in finishing the estate.Since it was just finishing up I had no choice.Then when the estate was completed the lawyer was then going to charge the executors more for doing their T4's so we did not take that either een though we had done a lot of work..Was this right?
    Shirley

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  3. Follow up question. the the estate problem.
    Both parties mother and daughter have deceased. The son and unofficial executor of the mother has died as well. Being the husband of the daughter, I have been trying to claim the sundry balance in a savings account at the TD bank, and been refused the money. seriously I doubt if estates of estates has any standing equal to mine...what is your opionion?

    I'm beginning to assume the money is simply lost in red tape.

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  4. I am now a resident of Quebec, I opened my bank account in Ontario. Quebec opened bank accounts are frozen and the surviving spouse does not have access. However, it is not clear that because the account was actually opened at a branch in Ontario if this rule would apply. Please advise.

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    Replies
    1. they will apply QC rules since you are a resident of QC, so no right of survivorship.

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  5. I have a situation that may be a little unique. My Father had joint accounts in his name, both me and my brother. This was to avoid probate. My brother was Power of Attorney, and just before my Dad went into a care home, he took all my Dad's joint accounts and opened a new joint account in my Dad's name and his name, thus leaving me out of any potential inheritance. My Dad passed last August. My brother also would not pay his capital gains on the house in joint names, and in the process made me liable for a gift tax, whereas the house with my name on 1/3 left me with no capital gains. This is currently under dispute

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  6. Hi can you help me with something my mother just passed away and she had a joint account. The joint account was with my brother and her alone. Not that she’s passed and she did not have a living will or a house under her name at all does that joint account belong to my brother and what happens to her personal account. Is there any advice you can give me I live in Ontario Canada. And considering there is no well no house just the account that she had which was joint with my brother does that money go to my brother.

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  7. A distant relative who lives on Vanciuver Island has died and left a real mess for his executor and sole beneficiary to sort out. The main issue is that although there are sufficient funds in his account to pay for the funeral the bank are claiming the whole amount to offset against his mortgage and refyse to allow the funeral to be paid out of the frozen account. Can they do this? My understanding is tgat funeral expenses are a first charge on the account any other debt such as a mortgage, which I would expect to be secured against the property itself, are second or lower charges. How do we get them to accept the funeral home's bill?

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  8. My father passed away Sept 2018, The ban was notified Nov of his passing. He has savings accounts and a Loan at the bank. They continued to take payments out AND life insurance payments out the last 7 months. Isnt this illegal as I thought everything was supose to be frozen. His name was the only name on the accounts and I filed for Probate and was approved 2 weeks ago. This is in BC is that makes any difference.

    I am trying to get information gathered before my bank apt tomorrow with them.

    ReplyDelete
    Replies
    1. Hi Chelsea,
      Sometimes banks freeze the assets of a deceased person, but not always. It is certainly not automatic. If there is any kind of dispute going on or any kind of suspicious activity, you would expect the bank to freeze the account.

      The person who is supposed to instruct the bank to stop taking payments is you, since you're the executor. Unfortunately, when you advised the bank of your father's death, they didn't discuss enough details with you. You assumed that things would be frozen and they didn't tell you otherwise.

      To stop the life insurance payments, you would have to deal with the life insurance company, not the bank. The bank doesn't have the right to decide which things it's going to pay when it has ongoing instructions for monthly payments. I know it should make sense for life insurance payments to cease when a person has passed away, but these days when so many things are automated and companies are so large that nobody ever knows anything about customers anymore, the responsibility falls on the executor to spell out what they want to have happen.

      So, to answer your question, it's not illegal at all.

      Lynne

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  9. My question is can the bank take money out of your own personal account to pay for your deceased loves account that is not joint?

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    1. Are you responsible for the debt in any way, such as being a joint card holder? Did you guarantee the loan? Was your account used to secure a line of credit? If not, then the bank should not be touching your money. Keep in mind that all I'm going on is one line of information. Much of the time, with these blog questions there are more facts that I never get to know about.But if it's really as simple as you have said, I don't see how the bank can legally take one person's money to pay someone else's debt.

      Lynne

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  10. Hi Lynne,

    I have a situation where my grandmother passed away and my aunt (her daughter) added herself as a joint owner of her accounts a few years before death. My grandmother has two other children (my dad and his brother). My aunt gave us 6 months worth of transactions from my grandmother's account and there are a number of purchases both before and after my grandmother's passing that are definitely personal expenses for my aunt. It looks like she has been using my grandmother's money for her own gain and is continuing to do so. Is this legal? Can she be forced to pay back funds that were not intended for her use? My aunt has confirmed by text message that she added herself to the account only to pay bills for my grandmother, but that is not what it looks like. The accounts are in Ontario.

    A few years before my grandmother passed away, she wanted to move closer to my dad in Quebec, but wasn't able to regain control of her accounts and she was quite distraught to find out that she had signed more than a power of attorney. I feel like my grandmother may have been financially abused. Can I request a full accounting to find out how much money was spent on personal items instead of my grandmother's expenses?

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    Replies
    1. There is no straightforward answer to this question. There are several things to take into account.

      You didn't say who your grandmother named as executor in her will, or even if there is a will. The person who is the executor or administrator should be the one looking into this question. If that happens to be the same aunt who was using the account, then it should be the people who would inherit her estate, including your father.

      The first comment I want to make is that a person cannot simply add herself to someone else's account. Your grandmother must have signed something to allow this. You've said that she didn't realize she had signed something like that, and it's possible she didn't know it.

      A phrase that you use in your question is "funds not intended for her use". That's an interesting one legally. How do you prove whether the funds were intended for her use? If this were to go to court for a trial, one of the factors that would be examined is the use of the account over time. If your aunt was using the funds for a long period of time and your grandmother did not object, is that because she was okay with your aunt using the funds or because she didn't know?

      You said your grandmother was unable to regain control of her accounts. If proven, that's a significant fact. When there is a power of attorney in effect, it gives your aunt full access to your grandmother's funds without the need for a joint account. To me, that raises the issue of why the account was ever made joint in the first place. It just makes a mess of what was a clear legal situation.

      To me, the funds spent while your grandmother was alive are in a different situation than the funds spent after her death. By law, the post-death funds belong in the estate until your grandmother's intentions for the account are proved.

      There's a lot to think about here and it's not a simple situation. I agree that it's worth looking into to determine what funds were spent by your aunt both before and after your grandmother's death. If there is no will, I don't think your aunt is the right person to act as administrator as she will be in a conflict of interest. If you can find a lawyer local to you who does a lot of wills and estates work, talk it over with them. There may well have been financial abuse here, and even if there was not, there are complicated legal questions to sort out.

      Lynne

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  11. Hi there! I'm curious if banks must freeze accounts on notification of the account holder's death. We told the bank my mother had died, and they started the process of establishing an estate account. Due to COVID it took them a month (really) to set up the account, resulting in a loss of money investment accounts due to the COVID crash. Any thoughts?

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    Replies
    1. Hi JAW,
      There is no law that directs banks to freeze accounts on the death of an account holder. In my experience, most banks do not freeze accounts unless there is some particular reason to do so. That reason is usually a dispute over who gets the funds, or someone coming in claiming they are the executor when they are not.

      Do not expect the bank to take the lead on this. It's the executor's responsibility to see about setting up an estate account.

      With respect to the loss of funds due to the crash, it seems to me that the same loss would have occurred whether the funds were in the name of the deceased or the executor. Not sure what you're getting at there.

      Lynne

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    2. Right, thanks. To be more clear, the executor had asked the bank to establish an estate account and move all of the accounts, including investments, into the estate account. It took them over a month to do so, resulting in the loss. We were originally told it would take a week.

      Delete
    3. But that’s not an estate issue, so thanks :)

      Delete
  12. Hello Lynne...for estate planning purposes only, my mother is considering adding myself and my sister to her chequing account,as "joint tenancy with a right of survivorship"..
    on her passing does this account then bypass probate and become ours...is CRA able to freeze the account?

    ReplyDelete
    Replies
    1. Generally when an account is frozen after a person's death, it is not done by CRA. It's the bank that freezes it, when that seems like the appropriate thing to do. If, for example, the ownership of the account is in dispute, the bank will freeze it until the court or the lawyers sort it out.

      The accounts you mention will not automatically bypass probate. Putting them in joint names "for estate planning purposes only" does not bypass probate. If your mother wants you and your sister to own those funds for yourself and not share them with any other beneficiaries, I suggest that she include a statement in her will saying so. However, if her only reason for putting your names on is to avoid probate fees, the funds still belong in her estate and will not pass to you. As you can see, many accounts get frozen at that time because the intent of the original account owner is not clear and needs to be determined. And no, setting up a joint account is not in itself evidence of anything.

      Lynne

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  13. My mum passed away last September without a will. I have gone through probate and was named executor,my sister and I are the only beneficiaries.I set up an estate account 2 weeks ago at my mums bank,given the bank all legal documents stating I was executor. They said the account was still frozen,how long will it take to access funds? It's been 6 weeks in total dealing with the bank. Thanks

    ReplyDelete
    Replies
    1. Hi Jannine,
      What you're dealing with is not law, but bank policy. As far the law is concerned, you have every right to handle those finds right now.

      Now, I have to say, not all accounts are frozen and I don't know why your mom's were frozen. I usually find that only happens when there's a dispute or something unusual happening, which doesn't seem to be your case.

      A possibility is that the bank is de-registering something, say a LIRA or RRIF. They take longer than simply cashing in a bank account because the bank has to deal with the government registration.

      Lynne

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  14. Hello, my father passed this year and added one of my sisters onto his bank account before he died to avoid the money going to probate. His intention of doing this was for her to split it with the other 3 of us, however he never made that known in writing just verbally to all of us. We are very close as family and there is no issue of her not splitting the money in the account.

    His will stated the estate be split equally between the 4 of us. There is no real value other than this bank account, and it is not a large dollar value.

    I am executor of his estate, and myself and my other sisters are not contesting the ownership of the bank account and funds. Does this account still have to go through probate if we as beneficiaries are not contesting?

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    Replies
    1. If you, as executor, are prepared to take the risk (which you say you believe to be minimal) that she will not distribute the funds, then go ahead and leave it off. I also suggest that you consider whether there are creditors who will end up being unpaid because the account is being left out of the estate.

      Lynne

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  15. Hi Lynne
    I have been a joint account holder with my mom for years. Both signatures were always required to withdraw any money. She also had an unsecured line of credit with the same bank. She passed in April this year. The bank refuses to take her name off the account and continues to take interest payments from this account. If the line of credit was unsecured and just in her name can they do this legally? Thank you

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    Replies
    1. Hi Michelle,
      My experience with banks is that they have their policies in place, designed to work for them. I have a problem with the bank continuing to take LOC payments for one simple reason: by doing so, they have decided that their debt ranks above any other debt that might be in your mother's estate. That is simply NOT THEIR CALL.

      Did your Mom leave a will naming an executor? If so, the executor should go to the bank and close the account. If there is no will you might have to be appointed as administrator.

      If that's not really an option - say if the bank account is the only asset - you have to push your complaint higher. Don't bother going through their complaint channels at the bank as they can drag things on for months while they continue to collect payments. Try the banking ombudsman.

      Lynne

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    2. Hi and thank you. I am the executor as well as the other name on the account. I’m an only child. They have a copy of the will and the death certificate as well. Her will leaves me everything she had. They won’t allow me to close the account. I will find the information to write to the banking ombudsman. Hopefully they can make some sort of call on the situation.

      Delete
  16. Hi Lynne
    Just to further they won’t let me close the account until they take my moms name off it. But they want their money on top of that.

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  17. Hello l have co executorsship an we are both trustees of my moms will. After she passes the bank told us we both have to sign for any monies being withdrawn from the account. We have been in conflict with one anther an this person is avoiding me at all costs an will not let me do nothing even tho l share co Executor, l recently found out that 2 bank associates an the other executor closed out the deceased account an payed out the 3 inheritances without consulting me or or sending me an letter to announce this. I called the bank about this an they said that they inquired to their legal department to do so with the other executor. I was appalled an we were both told as executors that we both needed to sign for anything concerning any type of monies going through the account.. I feel this was illegal for the bank to do this an we haven't even interred my mother's ashes yet as we were going to do that but covid held us back. The other Exector has known all of this an we agreed to this an is in writing.This person went maliciously behind my back with knowing what we were to follow through an did what ever his plans were to do an havi g the bank be a part of this.. Can the bank really do this..

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    Replies
    1. If you two are co-executors, then you both need to sign to close accounts. I believe the bank is wrong to let one executor do this alone.

      You may need to hire a lawyer to stop that executor. Not only is he breaching the rules by acting alone, he should not be paying out inheritances this early in the game, before debts are paid.

      Lynne

      Lynne

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