Once the assets of an estate start to be collected, the money has to be held somewhere while debts are paid, and the final distribution is prepared. If you are asking ‘What is a probate bank account and do executors need one?’, the short answer is that it is a dedicated account for the estate’s money, and while the law does not strictly require one, it is often the most sensible way to manage the funds.
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What Is A Probate Bank Account?
A probate bank account, sometimes called an executor account or estate account, is a bank account opened in the name of the estate and operated by the executors or administrators. It is used to receive estate money as it comes in, such as closing balances from the deceased’s own accounts, the proceeds of selling a property, or the encashment of investments, and to pay out the estate’s debts, expenses and, eventually, the beneficiaries.
The account belongs to the estate, not to the executor personally. Its purpose is to keep the estate’s money separate and to create a clear record of every transaction during the administration.
Is An Executor Legally Required To Open A Probate Bank Account?
There is no legal requirement to open a dedicated probate bank account. What the law does require is that an executor keeps estate money separate from their own, accounts properly for every sum received and paid, and acts in the interests of the beneficiaries.
The one thing an executor must not do is pay estate money into their personal bank account. Mixing estate funds with personal funds makes it difficult to show what belongs to whom, invites suspicion from beneficiaries, and can expose the executor to allegations of breach of duty, even where they have acted entirely honestly. A dedicated probate bank account is simply the most reliable way of avoiding that problem.
Why Is A Separate Probate Account Helpful?
The main advantages of a probate bank account are clarity and protection. Every payment into and out of the account is recorded on its statements, which makes preparing the estate accounts at the end of the administration far easier. Beneficiaries can see exactly what has happened to the money, which goes a long way towards preventing disagreements.
A separate probate account also helps where there are several executors acting together, since arrangements can usually be made for transactions to be authorised jointly. Furthermore, because many estates receive income during the administration, such as interest, rent, or dividends, a dedicated account makes it easier to identify that income for tax purposes.
When Can A Probate Bank Account Be Opened?
Most banks require sight of the grant of probate or letters of administration before they will open a probate bank account, because the grant is what proves the executor’s authority. Some will open one earlier on the basis of the will and death certificate, but this varies between institutions.
In practice, much of the estate’s money cannot be collected until the grant has been issued in any event. Before then, banks and building societies may release funds directly to pay for the funeral or to settle inheritance tax, so the absence of an estate account at that stage rarely causes difficulty.
How Do You Open And Run A Probate Bank Account?
The process is similar to opening any account, though the bank will ask for documents relating to the estate. Typically, these include the grant, the death certificate, and identification for each executor who will operate the account. Some banks offer accounts specifically designed for executors, while others will open a standard account in the estate’s name.
Once the probate bank account is open, good practice is to route everything through it. Money coming into the estate should be paid in, and debts, expenses, and distributions should be paid out from it, with a short note kept of what each transaction relates to. That discipline turns the bank statements into a readymade record of the administration.
What Are The Alternatives?
Where a solicitor is administering the estate, the funds are usually held in the firm’s client account rather than in a separate bank account opened by the executors. Client accounts are subject to strict rules set by the Solicitors Regulation Authority, money is held separately from the firm’s own funds, and every transaction is recorded and reconciled. For many executors, this removes the need to open and manage a probate bank account altogether.
For very small estates, an executor may decide that a separate probate bank account is not worth the effort, particularly where only one or two payments are involved. Even then, keeping estate money apart from personal money, and keeping a clear written record, remains essential.
What Mistakes Should Executors Avoid?
The most common error is paying estate money into a personal account, often with good intentions and for the sake of convenience. Others include paying beneficiaries before debts and tax have been dealt with, failing to keep a note of what each payment relates to, and leaving money in an account that earns little or no interest for a long period. Each of these can cause problems when the estate accounts are drawn up, and some can leave the executor personally exposed.
How Can Bartletts Solicitors Help?
When we administer an estate, we can hold the estate’s funds in our client account, deal with all receipts and payments, and prepare clear estate accounts for the beneficiaries at the end. If you would rather manage the money yourself, we can advise you on setting up and running a probate bank account properly, and on the order in which debts, tax, and beneficiaries should be paid.
To speak to our experts please call us free of charge on 0800 988 3674 or Make A Free Online Enquiry.
