What Happens to My Money When I Die?

If you were to die tomorrow, do you know what happens to your money? What happens with your banks accounts, investments, retirement funds, and insurance policies?

Trust me, no one likes to think or talk about their own death, but we all will die at some point (unless you’re an immortal vampire!).  And there’s nothing more loving you can do for your family than to make sure money stress isn’t piled on top of grief.

What Happens to My Money When I Die?

If you have a will or trust, you already know the answer. But according to a 2019 survey from Caring.com, more than half of Americans don’t have a will or other estate planning documents. You might have seen the stories in the news about celebrities like Michael Jackson, Prince, and Aretha Franklin, all who died without wills.

A common misconception is that you don’t need them unless you’re old and/ or rich, which just isn’t true. Interestingly, in the survey above, most respondents who didn’t have a will or estate plan say it’s purely because of procrastination. But if you wait until you need a will, it’s probably going to be too late.

So, let’s talk about what happens to your money when you die, especially if you DON’T yet have a will or an estate plan.

What Happens to my Banks Account When I Die?

If you’re married, you might assume that your spouse will automatically receive the money in your bank accounts. If your husband or wife is a joint account holder or listed as the beneficiary, then you’re correct. However, if your spouse’s name is NOT on your accounts or listed as the “Payable Upon Death” beneficiary, your bank accounts will be frozen and enter into probate.

According to LegalZoom.com: “Probate is the legal process through which a deceased person's estate is properly distributed to heirs and designated beneficiaries and any debt owed to creditors is paid off. In general, probate property is distributed according to the decedent's last will and testament, if there is one, or according to state law if no will exists.”

If you die without a joint account holder or beneficiary, a judge will decide, based on the laws of your state, who gets the money in your bank accounts. If you are married, chances are high that your spouse will get the funds, BUT getting the money via probate can take months and possibly years. What if they need that money to pay the bills?

Be sure that your spouse’s name is on all of your bank accounts, or at least add them as the Payable on Death beneficiary. If you’re single, it’s wise to designate a beneficiary on your accounts, so the money transfers to that person seamlessly upon your death. The same holds true for any non-retirement, after-tax investment accounts.

Even if you have a will, it’s a smart move to do this. The last thing your family needs is the prolonged financial stress of probate during their time of grief.

What Happens to My 401(k) Account When I Die?

When you enrolled in your 401(k) plan, you were required to designate a beneficiary. Your beneficiary generally won't have to wait until probate is completed to receive the account balance. Please note, your beneficiary will owe income tax (and possibly estate taxes) on the money, according to 401k Help Center.

It’s important to ensure that your beneficiary designations are up to date. I’ve heard horror stories of ex-spouses inheriting large 401(k) balances or receiving life insurance payouts because beneficiaries were not current.

What Happens to My Life Insurance When I Die?

“When the beneficiary of a life insurance policy receives the death benefit, this money is not counted as taxable income, and the beneficiary does not have to pay taxes on it,” according to Investopedia. If the stated beneficiary is also deceased, however, the insurance proceeds become part of probate, and could be taxable (at least in part) to the recipients.

This is another reason why it’s important to ensure your beneficiaries are up to date. It’s also wise to list a contingent beneficiary. For example, my husband is the primary beneficiary on my life insurance policy, but my brother is my contingent beneficiary, just in case my husband and I were to die together in an accident.

What Happens to My Other Valuable Stuff When I Die?

Even if you’re flat-broke, you’ll probably leave other things of value behind when you die: furniture, clothes, china, antiques, coin collections, etc. If you’re married, or have children, your stuff transfers to them. If you want particular things to end up with certain people, it’s super important to detail those out in your will. For example, I have my great-great grandmother’s antique Bavarian china set from the 1890’s, worth several thousands of dollars. I specifically stated in our will that this will go to my niece, Ayla, who will hopefully pass it down to her daughter or granddaughter in the future.

Your death is inevitable, whether it happens 5 years or 50 years from now. Please invest a small amount of time and money into consulting with an attorney to establish an estate plan or draw up a will. Unless you have a complicated family situation or a vast amount of wealth, the process will likely be cheaper and faster than you might imagine. In the meantime, add your spouse to your bank accounts, and update your beneficiaries on your insurance policies and retirement accounts!

Stay tuned for part two in this series, “What Happens to My Debt When I Die?”