When the owner of a certificate of deposit dies, the bank or credit union holding the account normally takes no action. The account remains active until the financial institution it is instructed to close it. A mature certificate of deposit may roll over multiple times.
State laws vary on joint bank accounts. In many states both owners of a joint account have equal access to funds, and if one owner dies, the surviving owner assumes control of all funds held inside the account. When the CD matures, the surviving owner can close it and withdraw the funds. However, in some states, if a joint owner dies, the funds held in a joint account are split between the surviving owner and the estate of the deceased. The bank holding the CD normally closes the account and splits the funds between the surviving owner and the court appointed individual representing the estate of the deceased.
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CD account holders often name one or more people as pay-on-death beneficiaries on their accounts. POD beneficiaries can bypass probate and access funds immediately after the death of the owner. The POD beneficiary must provide the financial institution holding the CD a certified copy of the death certificate and a valid form of identification. Banks normally require POD owners to visit a branch in person, but for small-dollar CDs, some banks disburse funds to PODs who send a death certificate via the mail.
When the sole owner of a CD with no named POD beneficiary dies, the funds in the account become part of the deceased's estate and must pass through probate. During the probate process, relatives, dependents, friends and creditors can claim the deceased's assets. The probate judge determines how to distribute the assets by examining the deceased's will or -- in the absence of a will -- after hearing testimony of related parties. At the conclusion of the probate process, the judge appoints an executor to handle the estate. That individual provides the financial institution holding the CD with letters of administration from the probate court and closes the account.
Some CD owners have no living heirs, no will and no creditors. In other situations, the heirs of a CD owner are simply unaware that an account exists. State laws require financial institutions to close accounts that have been inactive for specific periods of time. Generally, if an account owner neither accesses an account nor contacts the financial institution holding it for five consecutive years, the funds are classified as dormant. Every state has an abandoned assets fund where funds from dormant accounts and other assets are stored indefinitely until a claimant emerges to reclaim the money.