What Happens to a CD When the Owner Dies?
What happens to a CD when the owner dies? Learn how to access, transfer, and manage these financial assets effectively.
A Certificate of Deposit (CD) is a type of savings account that holds a fixed amount of money for a fixed period, earning interest. Like other financial assets, what happens to a CD upon the owner’s death depends significantly on how it was established. Understanding these arrangements is important for beneficiaries and estate representatives. This article will guide the reader through the common scenarios and steps involved in managing a CD after the owner’s passing.
CDs with a Named Beneficiary
Many Certificates of Deposit can be set up with a Pay-on-Death (POD) or Transfer-on-Death (TOD) designation. These designations allow CD funds to pass directly to named individuals upon the owner’s death, bypassing probate. This simplifies and expedites asset distribution.
To claim funds from a CD with a POD or TOD designation, a named beneficiary needs specific information and documentation, including the deceased owner’s full legal name and the CD account number. An original or certified copy of the death certificate is a universal requirement from financial institutions. The beneficiary also needs valid government-issued identification (e.g., driver’s license, passport) to verify identity, and their Social Security Number for tax reporting. Financial institutions may also require specific forms or affidavits for the beneficiary to complete.
CDs Without a Named Beneficiary
When a CD lacks a POD or TOD designation, it becomes an asset of the deceased’s probate estate. Probate is a court-supervised legal process that validates the will (if any), oversees debt and tax payments, and distributes assets to heirs or beneficiaries.
An executor (if there’s a will) or an administrator (if no will) is legally authorized to manage these funds. This representative gathers all estate assets, including the CD, and manages them legally. The financial institution will require specific official documents from this representative to release the CD funds.
The financial institution will also require official court documents, such as “Letters Testamentary” (for a will) or “Letters of Administration” (for no will). These prove the representative’s legal authority. An Employer Identification Number (EIN) for the estate may also be required, along with any specific forms or affidavits from the financial institution.
Process for Accessing CD Funds
After gathering all necessary documents, contact the financial institution holding the CD. Many financial institutions offer bereavement lines, website instructions, or online portals for reporting a death. Visiting a local branch in person is also an option.
Submit the gathered documents, such as the death certificate, beneficiary identification, or Letters Testamentary/Administration, to the institution. Submission methods vary by institution, including mail, in-person delivery, or secure online portals. Complete any required claim forms provided by the institution.
After receiving documentation, the financial institution verifies authenticity and completeness. This review confirms legal authority and identification before funds are released. Upon verification, CD funds are disbursed as instructed, via check, direct deposit, or transfer to a new account. Processing time varies, typically from a few days to several weeks after all correct documentation is received and verified.
Tax Implications
Interest earned on a CD has specific tax considerations upon the owner’s death. Interest accrued up to the death date is taxable income to the deceased and reported on their final income tax return. Interest earned on the CD after the date of death is taxable to the beneficiary or the estate, depending on who ultimately receives the funds.
Financial institutions issue Form 1099-INT to report CD interest income. This form shows total interest earned and is sent to the deceased’s estate or the beneficiary for tax reporting.
CDs are also considered part of the deceased’s gross estate for federal estate tax purposes. Federal estate tax applies only to very large estates, with a high exemption threshold. For 2025, this is $13.99 million per individual, increasing to $15 million on January 1, 2026. This means most estates will not incur federal estate tax liability. Some states may have their own estate or inheritance taxes, which might apply at lower thresholds than the federal exemption.