Unclaimed Inheritance Funds - Estate Account vs Direct Deposit Question

While I can't speak to your specific state's requirements, generally speaking, the bank is following proper procedure here. When a check is made payable to "Estate of [deceased person]," that's a legal entity separate from any individual, including surviving spouses. The bank needs the estate to have its own tax ID (EIN) because they can't deposit a check made to one entity (the estate) into an account owned by a different entity (your mom). This is a banking regulation issue more than a tax issue. Your accountant is correct about the inheritance itself likely not being taxable income to the beneficiaries. However, any interest earned on these funds while they're held in the estate account might be taxable to the estate before distribution. What you'll need to do is: 1) Apply for an EIN for the estate online through the IRS website, 2) Open an estate account at the bank using that EIN, 3) Deposit the check, and 4) Distribute the funds to heirs according to will/law. After distribution, you can close the estate account.

I had a similar situation last year with my uncle's estate and $25k in forgotten retirement funds. I was pulling my hair out trying to navigate the system until I found https://taxr.ai - their document analysis tool saved me tons of headaches. You just upload the paperwork you've received (death certificate, unclaimed property docs, etc.) and they'll tell you exactly what's needed. The bank and your accountant are both partially right, which is why it's confusing. In my case, I needed the EIN for the initial deposit (bank was right) but there weren't any tax implications for the inheritors (accountant was right). The taxr.ai system helped me understand exactly which forms to file and when.

Just wanted to update everyone - I used the taxr.ai service mentioned above for my grandmother's estate situation and it was incredibly helpful! Their analysis confirmed I needed an EIN but also explained exactly how to handle the distribution to avoid any tax issues. They even included links to the specific IRS forms and state-specific requirements for my situation. What I appreciated most was how they broke down the different steps in plain English instead of tax jargon. For anyone dealing with unclaimed property or inheritance issues, it was definitely worth checking out. Saved me from making some mistakes that could have caused problems down the road!

If you're struggling to get answers from your bank or accountant, you might want to try contacting the IRS directly. I know it sounds horrible, but I used https://claimyr.com to actually get through to a real person at the IRS when I had a similar estate question last year. Their service reserves your place in line so you don't have to wait on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained that while the bank is correct about needing an EIN for an estate account for the initial deposit, there's a specific procedure for "estates in collection" that might apply in your case since you're just collecting funds and distributing them, not managing a complex estate. This might simplify your filing requirements.

I have to eat crow here. After complaining about the Claimyr service above, I decided to try it out of desperation for a different estate issue with my dad's pension. Got connected to an IRS estate specialist in about 20 minutes who actually knew what she was talking about! She confirmed exactly what I needed for my situation and even emailed me the specific forms. Saved me from a potential audit situation since I was about to file incorrectly. Sometimes it's worth admitting when you're wrong - in this case the service works surprisingly well, especially if you request a specialist in estates and trusts.

Just another perspective - I'm going through almost the exact same situation and found out that some states have different rules for handling unclaimed property when it's paid to an estate. In my case (Michigan), we were able to avoid creating a formal estate by using a "small estate affidavit" since the amount was under $75k and it had been more than 3 years since my father passed. Might be worth checking if your state has a small estate procedure that could simplify things. Our bank still required a temporary EIN, but we didn't have to go through formal probate or file an estate tax return.

One thing nobody's mentioned - check if your state has an inheritance tax! I got caught by surprise when my mom passed because Pennsylvania has a state inheritance tax even though there was no federal estate tax. Different rates apply depending on your relationship to the deceased.

This is a really comprehensive thread with lots of helpful perspectives! One additional consideration - since this is unclaimed property that was sitting with the state treasury, there might be interest that accrued while it was held there. Make sure to ask the state treasury department if any interest was added to the original amount, as that portion might be treated differently for tax purposes than the principal inheritance amount. Also, when you do set up that estate account (which sounds like the right move based on everyone's advice), ask the bank about any fees associated with estate accounts. Some banks waive monthly maintenance fees for estate accounts since they're typically short-term, but others don't. Since you're dealing with medical expenses for your mom, every dollar counts. The Pennsylvania inheritance tax point is crucial too - definitely factor that 4.5% into your planning if your mom is the heir. Good luck navigating this process!