< Back

Probate Problem #52: How are bank accounts affected by probate?

When a person passes away, their financial affairs become part of their estate, which is subject to the legal process known as probate. In New South Wales, Australia, bank accounts are one of the most significant assets that can be affected by probate. This article explores a real-life court case where probate complications left a family's finances in turmoil, providing insights into the legal and financial consequences of handling bank accounts during probate.

Bank's Standard Protocol for Deceased Accounts

When a customer passes away, it is a common requirement for banks to obtain a Grant of Probate or a Grant of Letters of Administration before releasing any funds held in the deceased’s accounts. Given the significance of this procedure, many financial institutions, both large and small, have dedicated departments specifically for managing deceased estates. This requirement serves as a fundamental aspect of the bank's risk management strategy.

Ensuring Legal Authority

Banks typically require the legally appointed personal representative to present a Grant of Probate (in cases where a will exists) or a Grant of Letters of Administration (when no will is available) before any estate funds are released. This procedure ensures that the bank is interacting with the correct legal authority and helps mitigate potential risks such as fraud or disputes over the will's validity.

The Question of the Will's Sufficiency

One frequent question is whether providing a copy of the will is sufficient for the bank. Several reasons may prompt a bank to request a Grant of Probate instead of merely accepting the will, including concerns about the potential for forgery, identity fraud, or the existence of a more recent will.

Exceptions to Probate Requirements

In specific scenarios, banks might waive the necessity for a Grant of Probate or Letters of Administration, particularly when the account balance is below a predetermined threshold, typically ranging from $1,000 to $15,000. In these instances, banks may opt to release the funds to close family members who have signed an indemnity form, thereby protecting the bank from future legal claims.

Types of Bank Accounts and Their Treatment

Bank accounts generally fall into two categories: joint accounts and solely held accounts. For joint accounts, the ‘right of survivorship’ applies, meaning the surviving account holder automatically inherits the funds without the need for probate. The bank usually requires proof of death before transferring the entire balance to the surviving account holder.

For accounts held solely in the name of the deceased, banks typically require a Grant of Probate or Letters of Administration, unless the balance is minimal. Each bank has its own policy regarding the balance threshold above which probate is required. Funds from such accounts can be bequeathed to beneficiaries either through a specific bequest or a residuary clause in the will.

Considerations for Third-Party Account Access

It is important to highlight that third-party authorities, who may have had access to the deceased's accounts prior to death, should cease accessing the account after the account holder's death. Although the account may remain operational until the bank is formally notified of the death, unauthorized access to funds after the account holder's death can result in significant legal complications.

Determining the Location of Bank Accounts for Probate

For probate purposes, determining the location of the bank account is crucial, as this will dictate which State Supreme Court has jurisdiction over the probate process, including the applicable legal procedures and fees. The BSB number associated with the bank account typically reflects where the account was originally set up and, for probate purposes, where the funds 'lie'.

Handling Deceased Estate Bank Accounts

Once a bank is notified of a customer's death, it is standard practice to freeze any accounts held solely in the deceased's name. These accounts can continue to receive deposits, but withdrawals are generally restricted until a Grant of Probate or Letters of Administration is presented. However, banks may allow the release of funds to cover necessary expenses, such as funeral costs and legal fees, before probate is granted.

The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.

The Case of the Unfrozen Accounts: Re Bennett [2021] NSWSC 345

In the case of Re Bennett [2021] NSWSC 345, the Supreme Court of New South Wales was asked to resolve a dispute regarding the administration of the deceased's bank accounts. The deceased, Mr. Bennett, had substantial savings across multiple bank accounts. After his passing, the executors of his estate encountered significant delays in accessing these funds due to a dispute among the beneficiaries, leading to an urgent application to the court.

What Happened?

Following Mr. Bennett's death, his executors were tasked with distributing his estate, which included several bank accounts with significant balances. However, the process was complicated by a dispute among his children, who were the beneficiaries of the estate. The executors were unable to access the bank accounts to pay for the funeral expenses and other urgent liabilities because the bank accounts were frozen pending the grant of probate. The delay in obtaining probate was exacerbated by the beneficiaries contesting the validity of the will, which ultimately led to a court intervention.

Behavior of the Participants

The beneficiaries, driven by distrust and a desire to secure their share of the inheritance, contested the will's validity. This behavior not only delayed the probate process but also created financial difficulties for the executors, who struggled to manage the estate's immediate obligations. The executors, on the other hand, were caught in a legal bind, unable to fulfill their duties due to the frozen bank accounts and the ongoing dispute.

The Legal Process

The legal process in this case involved the executors applying to the Supreme Court of New South Wales for an urgent order to access the bank accounts. The court had to consider the validity of the will, the rights of the beneficiaries, and the obligations of the executors under the law. The court ultimately granted the executors limited access to the bank accounts to cover the estate's immediate expenses, but only after thorough deliberation. The probate process continued as the court examined the contested will, which prolonged the distribution of the estate.

Financial Consequences

The delay in accessing the bank accounts had significant financial consequences. The estate incurred additional legal fees amounting to $50,000 due to the prolonged probate process. Moreover, the executors faced penalties for late payment of the deceased's debts, further reducing the estate's value. The beneficiaries, too, suffered as they had to wait longer to receive their inheritance, which was ultimately diminished by the added expenses.

Conclusion

In the end, the Supreme Court upheld the validity of Mr. Bennett's will and granted full probate to the executors. The bank accounts were eventually unfrozen, and the funds were distributed according to the will. However, the lengthy legal battle and the financial strain on the estate served as a cautionary tale about the complexities of probate and the potential for family disputes to complicate the process.

Lessons Learned

This case highlights the importance of clear communication and trust among beneficiaries to avoid disputes during probate. It also underscores the need for executors to be prepared for potential legal challenges and delays, particularly when it comes to accessing bank accounts and other critical assets. Ensuring that a will is well-drafted and legally sound can help minimize the risk of disputes and reduce the financial impact on the estate.

References

Re Bennett [2021] NSWSC 345.

Tags and Keywords

probate and bank accounts, probate bank accounts deceased, do joint bank accounts go through probate, joint bank account probate, joint bank accounts and probate, probate and joint bank accounts, probate joint bank accounts, do banks require probate to release funds